Question

Assume the nominal rate of return is 5.75% and the inflation rate is 2.89%. Find the real rate of return using the exact formula.

Answer 1

the real rate of return is 2.78%

Step-by-step explanation:

The computation of the real rate of return is shown below:

The real rate of return is

(1 + nominal rate of return) = (1 + real rate of return) × (1 + inflation rate of return)

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

= (1 + 0.0575) ÷ (1 + 0.0289) - 1

= 0.027796676

= 2.78%

hence, the real rate of return is 2.78%

We simply applied the above formula so that the correct value could come

And, the same is to be considered