Say you own an asset that had a total return last year of 14 percent. If...

Say you own an asset that had a total return last year of 14 percent. If the inflation rate last year was 5.5 percent, what was your real return?

Multiple Choice

7.96%
8.16%
8.26%
-7.46%
8.06%

Solutions

Expert Solution

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

(1 + 0.14) = (1 + Real rate of return)(1 + 0.055)

Real rate of return = [(1 + 0.14) / (1 + 0.055)] - 1

Real rate of return = 0.0806 or 8.06%

jeff jeffy answered 2 years ago

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