In: Finance
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 ________%.
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.