What is the real increase in value if $2,500 is invested for one year at 7%...
Homework Answers
| Nominal rate of interest | 7% | ||||
| Inflation rate | 2.10% | ||||
| Real rate of return = (1+Nominal rate) /(1+Inflation rate) -1 | |||||
| 1.07 /1.021 - 1 =4.80% | |||||
| Amount invested = 2500 | |||||
| Amount after one year = Amount invested (1+reat rate) | |||||
| 2500 *1.048 = 2620 | |||||
| Real increase in value = 2620-2500 =120 | |||||
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