Question

The consumer price index was 200 in 2012 and 208 in 2013. the nominal interest rate during this period was 9 percent. what was the real interest rate during this period?

Answer 1

Given:
CPI 2012 - 200
CPI 2013 - 208
Nominal interest rate: 9%

1) CPI 2012 multiplied by (1 + nominal rate)
200 x 1.09 = 218

2) Product of #1 less CPI 2013 
218 - 208 = 10

3) Difference divided by CPI 2012
10 / 200 = 0.05

4) Quotient multiplied by 100%
0.05 x 100% = 5%

The real interest rate during this period is 5%.