Question

If you invest your money at a 10% rate, and inflation is 3%, how much money did you really make? (As a percentage.)

Answer 1

7%

Explanation:

Suppose you invest $100 at 10% rate.

After a year, you should have 100 + 0.1(100) = 100 + 10 = $110

But inflation is 3%, so you loose 0.03*100 = $3

Now your actual purchasing power is $110 - $3 = $107

With respect to $100, you gain $7, or 0.07 or 7%.

So, you would really make 7%