Question

Say you own an asset that had a total return last year of 15 percent. Assume the inflation rate last year was 2.5 percent.

Required:

What was your real return? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) Reak return ___l

Answer 1

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

(1+0.15)/(1+0.025)-1

=(1.15/1.025)-1

which is equal to

=12.20%(Approx).