Question

Q4) An investment offers a total return of 12.8 percent over the coming year. Janice thinks the total real return on this investment will be only 7 percent. What does Janice believe the approximate inflation rate will be over the next year

Answer 1

inflation rate= 5.8%

Step-by-step explanation:

Giving the following information:

An investment offers a total return of 12.8 percent over the coming year. Janice thinks the total real return on this investment will be only 7 percent.

The real return on investment includes the effect on inflation.

Real rate of return= total return - inflation rate

0.07=0.128 - inflation rate

inflation rate= 0.058= 5.8%