If a nominal rate of interest is 13.36%, and the real
rate of interest is 8.96%. What is the expected rate of inflation?
Thanks for the opportunity to answer your question!
Once again, when we need to find the expected interest rate, we may use an augmented version of the Fisher equation.
real interest rate = rnominal interest rate = iexpected rate of inflation = e
The Fisher equation thus reads:
1 + i = (1 + r) * (1 + e)
In substituting i with 13.36 and r with 8.96, we obtain the following equation:
1 + 13.36 = (1 + 8.96) * (1 + e)
14.36 = (9.96) * (1 + e)
14.36 / 9.96 = e + 1
1.44 = e + 1
1.44 - 1 = e
e = 0.44
0.44% is your expected rate of inflation. Hope this helps!
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