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5 January, 10:09

An investment offers a total return of 13 percent over the coming year. Alan Wingspan thinks the total real return on this investment will be only 8 percent. What does Alan believe the inflation rate will be over the next year?

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  1. 5 January, 10:16
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    4.63%

    Explanation:

    (1 + Nominal Rate) = (1 + Real Rate) * (1 + Inflation Rate)

    = 1.13 = 1.08 x (1 + Inflation Rate)

    1.046296 = 1 + inflation rate

    Inflation rate = 0.046296 = 4.63%
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