You earned a nominal rate of return equal to 10.50% on your investments last year. The...

You earned a nominal rate of return equal to 10.50% on your investments last year. The annual inflation rate was 2.60%. a. What was your approximate real rate of return? (Round your answer to 2 decimal places.) Approximate real rate of return % b. What was your exact real rate of return? (Round your answer to 2 decimal places.) Real rate of return %

Expert Solution

a.approximate real rate of return=Nominal rate-Inflation rate

=10.5-2.6

=7.9%

b.exact real rate of return=[(1+nominal rate)/(1+inflation rate)]-1

=[(1+0.105)/(1+0.026)]-1

=(1.105/1.026)-1

=7.7%(Approx)

jeff jeffy answered 2 years ago

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