Revision as of 17:33, 26 November 2023 by Admin (Created page with "'''Solution: D''' We want the real rates in both countries to be the same. For Canada, <math>i=.18, r=.14</math>. Thus, <math display="block"> i_{\text {real }}=\frac{i-r}{1+r}=\frac{.18-.14}{1+.14} </math> For <math>\mathrm{F}</math>, we want the same real interest rate and <math>r=1.0</math>. We need to find <math>i</math> for F. Thus <math display="block"> \frac{.18-.14}{1+.14}=\frac{i-r}{1+r}=\frac{i-1}{1+1} </math> Solving for <math>i</math> gives <math>i=1...")
Exercise
ABy Admin
Nov 26'23
Answer
Solution: D
We want the real rates in both countries to be the same. For Canada, [math]i=.18, r=.14[/math]. Thus,
[[math]]
i_{\text {real }}=\frac{i-r}{1+r}=\frac{.18-.14}{1+.14}
[[/math]]
For [math]\mathrm{F}[/math], we want the same real interest rate and [math]r=1.0[/math]. We need to find [math]i[/math] for F. Thus
[[math]]
\frac{.18-.14}{1+.14}=\frac{i-r}{1+r}=\frac{i-1}{1+1}
[[/math]]
Solving for [math]i[/math] gives [math]i=1.070175=107.0175 \%[/math].
References
Hlynka, Myron. "University of Windsor Old Tests 62-392 Theory of Interest". web2.uwindsor.ca. Retrieved November 23, 2023.