18. Using the Fisher Equation, compute the real rate of return if the nominal rate is...

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

Solutions

Expert Solution

(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%

jeff jeffy answered 1 year ago

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