Question

Say you own an asset that had a total return last year of 10.7 percent. If the inflation rate last year was 4.9 percent, what was your real return? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Real return

%

Answer 1

Based on Fischer Relation,

(1 + Nominal Return) = (1 + Real rate) * (1 + Inflation)

(1 + 10.7%) = (1 + Real Rate) * (1 + 4.9%)

1.107 = (1 + Real Rate) * (1.049)

(1 + Real Rate) = 1.0553

Real Rate = 0.0553

Real rate = 5.53%