Question

You made an investment over the past year, and your nominal return was 20.4%. Over the same year, the rate of inflation was 2.5%. What was the real rate of return for this investment? Enter your answer as a percentage, rounded to two decimals, and without the percentage sign ('%'). For example, if your answer is 0.123456, then it is equivalent to 12.35%, so you should enter 12.35 as the answer.

Answer 1

The real rate of return for an investment with a nominal return of 20.4% and an inflation rate of 2.5% is 17.9%, rounded to two decimals.

Step-by-step explanation:

To calculate the real rate of return, we need to adjust the nominal return by the inflation rate. The formula for the real rate of return is given by:

Real Rate of Return = Nominal Rate of Return - Inflation Rate

You made an investment with a nominal return of 20.4%. With an inflation rate of 2.5%, we can calculate the real rate of return as follows:

Real Rate of Return = 20.4% - 2.5% = 17.9%

Therefore, the real rate of return for this investment would be 17.9% when rounded to two decimals, which you would enter as 17.90 without the percentage sign.