You are promised a nominal return of 13% on a 1-year investment, and expect the rate...

You are promised a nominal return of 13% on a 1-year investment, and expect the rate of inflation to be 4% during that period. The real rate you expect to earn is %

Please enter your answer with TWO decimal points.

Solutions

Expert Solution

(1 + Nominal rate of return) = (1 + Real rate of return)(1 + Inflation rate)

(1 + 0.13) = (1 + Real rate of return)(1 + 0.04)

Real rate of return = [(1 + 0.13) / (1 + 0.04)] - 1

Real rate of return = 0.0865 or 8.65%

jeff jeffy answered 1 year ago

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