"You earned a 14.25% return on an investment last year. Inflation was 1.25% last year. According...

"You earned a 14.25% return on an investment last year. Inflation was 1.25% last year. According to the Fisher Equation, what was your real return last year?"

		12.84%
		13.00%
		14.25%
		15.50%

Solutions

Expert Solution

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

(1 + 0.1425) = (1 + Real rate of return)(1 + 0.0125)

Real rate of return = [(1 + 0.1425) / (1 + 0.0125)] - 1

Real rate of return = 0.1284 or 12.84%

jeff jeffy answered 2 years ago

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