In: Finance
18. Using the Fisher Equation, compute the real rate of return if the nominal rate is 120 percent and inflation is 100 percent.
Group of answer choices
a. 30 %
b. 20 %
c. 10 %
d. zero percent
(1 + Nominal rate of return) = (1 + Real rate of return)(1 + Inflation rate)
(1 + 1.20) = (1 + Real rate of return)(1 + 1.00)
Real rate of return = [(1 + 1.20) / (1 + 1.00)] - 1
Real rate of return = 0.10 or 10%