Question

Josephine earned a 15% return on her investments last year. If the inflation rate that year was 4%, what is her real rate of return?

A. 4%


B. 11%


C.15%


D.19%

Answer 1

The answer will be c

Answer 2

B. 11%

Explanation:

Using the formula

Real rate of return = nominal rate - inflation rate

Note that the nominal rate of a business is the return on investment in a particular year.

Therefore if Josephine earned a 15% return on her investments last year, her nominal rate is also 15%

Since the inflation rate is 4%

Rate of return = 15%-4%

Rate of return = 11%