How to Calculate Inflation , Real and Nominal Rate

#InflationRate
#RealRate
#NominalRate
Inflation and Nominal Returns
Suppose the real rate is 5 percent and the inflation rate is 4 percent.
What rate would you expect to see on a Treasury bill?
Answer
Step 1: what is formula
(1+R)=(1+r)(1+h)
Where
R= nominal rate
r=real rate
h=inflation rate
Step 2: find real rate (r)= 5% ( rate we actually required)
Step 3: h =inflation rate = 4% ( rate product or service price increase)
Step 4: apply formula
(1+R)=(1+r)(1+h)
1+R=(1+5%)(1+4%)
1+R = (1.05)(1.04)
1+R=1.092
R=1.092 – 1 = 0.092= 9.2%
R : rate we want to offset with inflation rate
So Treasury bill should offer rate at least 9.2%