The real rate of return on an investment is 3% and the inflation rate is 2.25%....

The real rate of return on an investment is 3% and the inflation rate is 2.25%. What is this investment's nominal rate of return

Solutions

Expert Solution

Approx Nominal rate of return = Real rate of return + Inflation rate

= 3% + 2.25%

= 5.25% Answer

Exact Nominal rate of return = ( 1 + Real rate of return ) * ( 1 + Inflation rate ) - 1

= ( 1+ 0.03 ) * ( 1 + 0.0225 ) - 1

= 0.0532 or 5.32% Answer

jeff jeffy answered 1 year ago

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