If an investment providing a nominal return of 10.5% only offers a real rate of return of 6.4%, then the exact inflation rate (%) is closest to

If an investment providing a nominal return of 10.5% only offers a real rate of return of 6.4%, then the exact inflation rate (%) is closest to ________%.

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Expert Solution

Particulars	Values
Nominal rate	10.50%
Real rate	6.40%

Inflation rate = [ [ 1 + Nominal Rate ] / [ 1 + Real rate ] ] - 1
= [ [ 1 + 0.11 ] / [ 1 + 0.06 ] ] - 1
= [ [ 1.105 ] / [ 1.064 ] ] - 1
= [ 1.0385 ] - 1
= 0.0385
i.e, Inflation rate is 3.85 %

Pls comment, if any further assistance is required.

jeff jeffy answered 2 years ago

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