Waec Model Questions Vol1 2020 Economics Question 45

Practice objective / multiple choice question 45 from the 2020 Waec Model Questions Vol1 Economics examination.

Waec Model Questions Vol1 2020 Economics Objective / Multiple Choice Medium Difficulty
Question 45 WAEC_MODEL_QUESTIONS_VOL1 • 2020 • ECONOMICS • objective

A commercial bank advertises a nominal interest rate of 12% per annum. Expected inflation for the next year is 8%.\n(a) Using the approximate Fisher equation, compute the real interest rate.\n(b) Using the exact Fisher equation \((1+r) = (1+i)/(1+π)\), compute the real interest rate (to two decimal places).\n(c) If a firm requires a real return of at least 5% to undertake an investment, will the bank's rate satisfy the firm's requirement?

Answer Options

A. a) 5% b) 3.70% c) Yes, the real rate meets the required 5%
B. a) 4% b) 3.70% c) No, the real rate is above the required 5%
C. a) 4% b) 3.60% c) No, the real rate is below the required 5%
Correct Answer D. a) 4% b) 3.70% c) No, the real rate is below the required 5%
Correct Answer
D
Correct Option:
a) 4% b) 3.70% c) No, the real rate is below the required 5%

About This Question

This is Waec Model Questions Vol1 2020 Economics Question 45. It is one of the objective questions from the 2020 Waec Model Questions Vol1 Economics examination.

Difficulty level: Medium .

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