In: Finance
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
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