The nominal interest rate is 10% and inflation is expected to be 5%, what is the real rate of interest? (No need to do a timeline for this one, just show the equation and your answer)

0.04761 or 4.76%

Explanation:

The computation is shown below:

Data given in the question

Nominal interest rate = 10%

Expected inflation rate = 5%

So by considering the above information, the real rate of interest is

Real rate of return = { (1 + nominal rate of return) : (1 + inflation rate) } - 1

= { (1 + 0.10) : (1 + 0.05) } - 1

= 0.04761 or 4.76%