If the Money Discount Rate is 19% and Inflation Rate is 12%, then the Real Discount Rate is:
A. 7%
B. 5%
C. 5.70%
D. 6.25%
Answer: Option D
Solution (By Examveda Team)
The formula to calculate the Real Discount Rate is:Real Rate = [(1 + Money Rate) / (1 + Inflation Rate)] - 1
Substitute the given values:
Real Rate = [(1 + 0.19) / (1 + 0.12)] - 1
Real Rate = (1.19 / 1.12) - 1
Real Rate = 1.0625 - 1 = 0.0625 or 6.25%
Conclusion: The Real Discount Rate is 6.25%, so the correct answer is Option D.
This Question Belongs to Commerce >> Financial Management
Money discount rate = 1+money discount rate/1+inflation rate - 1
=(1+0.19 ÷ 1+0.12)- 1
=1.19÷1.12-1
=1.0625-1= 0.0625= 6.25%
Money discount rate = 1+money discount rate/1+inflation rate - 1
=(1+0.19 ÷ 1+0.12)- 1
=1.19÷1.12-1
=1.0625-1= 0.0625= 6.25%