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Suppose that for the coming year inflation is forecast at an effective annual rate of r = 5% and interest is forecast at effe

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Answer #1

The real rate of return is the actual rate of return after considering the factors that affect the rate of return like inflation.

Real rate of return = ((1+nominal rate)/(1+inflation rate))-1

Real rate of return = ((1+0.08)/(1+0.05))-1

Real rate of return = 0.02857

Real rate of return = 2.857%

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