Over a given year, the real risk-free rate of return is 1.6% and the Consumer Price...

Question

Question

Over a given year, the real risk-free rate of return is 1.6% and the Consumer Price Index has jumped from 250 to 270. What is the

nominal risk-free rate of return?

Answer 1

Answer #1

Inflation rate = (270 /250 ) - 1 = 8%
Real return = 1.6%

Real return = (1+Nominal Rate) /(1+Inflation rate) - 1
Nominal Rate = 9.73%

Answer is 9.73%

Answer 2

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