An investment offers a total return of 17 percent over the coming year. Alan Wingspan thinks...

An investment offers a total return of 17 percent over the coming year. Alan Wingspan thinks the total real return on this investment will be only 13 percent.

What does Alan believe the inflation rate will be over the next year? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Inflation rate

%

Expert Solution

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

(1 + 0.17) = (1 + 0.13)(1 + Inflation rate)

Inflation rate = [(1 + 0.17) / (1 + 0.13)] - 1

Inflation rate = 0.0354 or 3.54%

jeff jeffy answered 2 years ago

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