Answer:
1.9%
Explanation:
Real interest is the return that investors would require without inflation.Money interest is the return that investors would require with inflation.The real interest can be calculated using the following formula:
(1+i)(1+r)=(1+)
where
i=inflation rate=5%
r= real interest rate
m= money interest rate =7%
(1+5%)(1+r)=(1+7%)
1+r=(1+7%)/(1+5%)
1+r=1.019
r=1.02-1=0.019
Real interest rate=0.019*100=1.9%
