Homework Answers
Answer 12
The correct answer is (d) 3.92%
Formula:
Real Rate of Return is given by:
r = (1 + i)/(1 + e) - 1
where i = Nominal rate of return = 6% = 0.06
e = inflation rate = 2% = 0.02
r = real rate of return
Hence, r = (1 + 0.06)(1 + 0.02) - 1 = 0.0392 ~ 3.92%
Hence real rate of return = 3.92%
Hence, the correct answer is (d) 3.92%
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