Question

Heritage Associates LLC offers a 10-year investment into a shopping mall with projected annual returns of 5.5%. If Francois invests $20,000 into this investment and the current rate of inflation is 2.4%, what is the real rate of return (as a percent)? Round to the nearest hundredth of a percent.

Answer 1

The real rate of return for François's investment, after adjusting for an inflation rate of 2.4%, is approximately 2.97%.

Step-by-step explanation:

The real rate of return on François's investment, considering an inflation rate of 2.4%, is calculated using the Fisher equation which adjusts the nominal rate of return for inflation. The formula is (1 + nominal rate) / (1 + inflation rate) - 1. In this case, the calculation would be (1 + 0.055)/(1 + 0.024) - 1, which simplifies to approximately 0.0297 or 2.97% when rounded to the nearest hundredth of a percent.