Say you own an asset that had a total return last year of 16 percent. Assume...

Say you own an asset that had a total return last year of 16 percent. Assume the inflation rate last year was 3.8 percent. Wh

Say you own an asset that had a total return last year of 16 percent. Assume the inflation rate last year was 3.8 percent. What was your real return? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Real return = _______ %

Expert Solution

The Fisher equation, which shows the exact relationship between nominal interest rates, real interest rates, and inflation, is:

(1 + R) = (1 + r)(1 + h)

r = [(1 + 0.16) / (1 + 0.038)] – 1

r = 0.1175, or 11.75%

ekkarill92 answered 2 years ago

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