Question

Calculate the real dollar rate of return on a painting whose price rises from $100,000 to $150,000 in a year, while all dollar prices increased by 2 percent The real rate of return will be ______ percent Enter your response as a percentage rounded to one dec mal place.

Answer 1

To calculate the real dollar rate of return, we need to adjust for inflation using the Consumer Price Index (CPI) for the year.

Assuming that the CPI increased by 2 percent over the year, the inflation-adjusted price of the painting at the end of the year would be:

$150,000 / 1.02 = $147,058.82

Therefore, the real dollar rate of return on the painting is:

($147,058.82 - $100,000) / $100,000 x 100% = 47.06%

Rounded to one decimal place, the real rate of return is 47.1%.