To calculate the nominal rate of interest, we use the Fisher Equation:

$i = r + \pi + (r \cdot \pi)$

Where:

• $i$ is the nominal interest rate,
• $r$ is the real interest rate (expressed as a decimal),
• $\pi$ is the expected inflation rate (expressed as a decimal).

Given:

• $r = 3.73\%$ or $0.0373$,
• $\pi = 6.7\%$ or $0.067$.

Calculation:

1. Calculate the direct sum of the real rate and inflation rate: $r + \pi = 0.0373 + 0.067 = 0.1043$

2. Calculate the interaction term $r \cdot \pi$: $r \cdot \pi = 0.0373 \cdot 0.067 = 0.0024991$

3. Add the components together to find $i$: $i = 0.1043 + 0.0024991 = 0.1067991$

4. Convert to a percentage and round to two decimal places: $i = 10.68\%$

Final Answer:

The nominal rate of interest would be 10.68%.

Would you like additional explanations or examples? Here are 5 related questions:

1. How does the Fisher Equation account for inflation in interest rate calculations?
2. If the inflation rate doubles, how would the nominal interest rate change?
3. Why is the interaction term $r \cdot \pi$ included in the calculation?
4. How does a negative inflation rate (deflation) affect the nominal rate?
5. What is the difference between real and nominal interest rates in practice?

Tip: Always express rates as decimals during calculations to avoid errors when using percentages!