Question

What's your real rate of return if your savings account pays 2.5% interest and inflation is at 1%?

A. 1.5%
B. 2.5%.
C. 3.5%
D. Can't calculate.

Answer 1

Real rate of return = 1.5%

Explanation:

Given:

Savings account return = 2.5%

Inflation rate = 1%

Find:

Real rate of return = ?

Computation:

⇒ Nominal rate of return = Real rate of return + Inflation rate

⇒ Real rate of return = Savings account return - Inflation rate

⇒ Real rate of return = 2.5% - 1%

⇒ Real rate of return = 1.5%