Question

You're considering an investment that you expect will produce a return of 10 percent next​ year, and you expect that your real rate of return on this investment will be 7 percent. What do you expect inflation to be next​ year? The expected inflation rate next year will be

Answer 1

Inflation= 3%

Step-by-step explanation:

Giving the following information:

You're considering an investment that you expect will produce a return of 10 percent next​ year, and you expect that your real rate of return on this investment will be 7.

Inflation= interest rate - real interest rate

Inflation= 10 - 7= 3%

Answer 2

Answer: The expected inflation rate next year will be:v 2,80%

Explanation: The formula used is: Inflation Rate = ((1 + Nominal Rate of Interest) / (1 + Real Rate of Interest)) -1

So:

Inflation rate = ((1 + 0,1) / (1 + 0,07)) - 1 = 0,02803 x 100 = 2,80%.