Tom put his savings into a certificate of deposit that paid a nominal interest rate of 5 percent a year. during the year, the cpi increased from 240 to 250. what was the real interest rate that tom earned? round your answer up to the second decimal. tom earned a real interest rate of percent a year. round your answer up to the second decimal.

Explanation:

we will divide the consumer price index (CPI)  to get the inflation rate

250/240 -1 = 0.041666666666  =  1/24  = 4.17% inflation rate

Then we use the fisher equation to solve for the real rate.

Some economist and accountant calculate the real interest rate by subtracting inflation by nominal:

nominal - inflation

5% - 4.17% = 0.83% or

0.05 - 0.041666 =   0.008333 = 0.83%

However the correct way is using the fisher equation

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answer; higher rate;