Question

Pick the correct statement from below. Multiple Choice The risk-free rate represents the change in purchasing power. Any return greater than the inflation rate represents the risk premium. Historical real rates of return must be positive. Nominal rates exceed real rates by the amount of the risk-free rate. The real rate must be less than the nominal rate given a positive rate of inflation.

Answer 1

The real rate must be less than the nominal rate given a positive rate of inflation.

Step-by-step explanation:

As we know that

nominal rate = real rate + inflation

Nominal rate of return is a total of real rate of return and the inflation rate

In the case when the inflation rate is positive so the real rate should be lowered by the nominal rate of return

Therefore the last option is correct