if the expected inflation rate is 3 percent and if you expect to earn 9 percent nominal return, what is the expected real rate of return on your investment?
a. 5.825%
b. 12.27%
c. 8.33%
d. 6.12%
Real return=[(1+nominal rate)/(1+inflation rate)]-1
=[(1+0.09)/(1+0.03)]-1
=(1.09/1.03)-1
which is equal to
=5.825%(Approx).
if the expected inflation rate is 3 percent and if you expect to earn 9 percent...
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