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If the Money Discount Rate is 19 and Inflation Rate is...

This question belongs to Commerce Financial Management
Financial Management
?

If the Money Discount Rate is 19% and Inflation Rate is 12%, then the Real Discount Rate is:

Answer & Solution
Correct Answer: Option D
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.
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2 Comments
Shehina Firoz
Shehina Firoz 1 year ago
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%
Shehina Firoz
Shehina Firoz 1 year ago
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%
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