Question

The inflation rate over the past year was 1.8 percent. If an investment had a real return of 7.2 percent, what was the nominal return on the investment

Answer 1

9.13%

Explanation:

The computation of the nominal return on the investment is shown below:

As we know that

Nominal interest rate = {(1 + real interest rate) × (1 + inflation rate)} - 1

= {(1 + 0.072) × (1 + 0.018)} - 1

= (1.072 × 1.018) - 1

= 9.13%

Hence, the nominal interest rate could be find out by applying the above formula i.e by considering the real interest rate and the inflation rate