If the return of the investment is 8.20% and the inflation rate is 3.12%, what is...

Question

Question

If the return of the investment is 8.20% and the inflation rate is 3.12%, what is the inflation-adjusted rate of return?

Answer 1

Answer #1

Inflation Adjusted rate of return

It is the return accounts for the effect of inflation on an investment's performance over time.
It is also known as the real return

Inflation Adjusted rate of return

=( 1+ return ) / (1+ inflation rate) -1

Return on the investment =8.20%

Inflation rate = 3.12 %

Infaltion Adjusted rate of return = (1+ 0.082) / (1+0.0312) -1

= 1.082 / 1.0312 -1

=1.049 -1

=0.049 or 4.9%

Answer 2

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