Answer:
The exact real rate of interest is:
2.95% (5.75% - 2.8%).
Explanation:
The real rate of interest of 2.95% is the interest rate that has been adjusted to remove the effect of inflation of 2.8%. This implies that the nominal rate is 5.75%. When inflation rate of 2.8% is removed from the nominal rate, we then obtain the real rate of interest as 2.95%. It is normally computed as the nominal interest rate minus the expected rate of inflation.
