Suppose an investment gave you a real rate of return of 10.50%. If the inflation rate was 13.00%, what was your nominal rate of return?



To calculate the nominal rate of return, we can use the following formula:

\[
1 + r_n = (1 + r_r) \times (1 + i)
\]

Where:
- \( r_n \) is the nominal rate of return
- \( r_r \) is the real rate of return (10.50% or 0.105)
- \( i \) is the inflation rate (13.00% or 0.13)

Now, let's solve for \( r_n \):

\[
1 + r_n = (1 + 0.105) \times (1 + 0.13)
\]
\[
1 + r_n = 1.105 \times 1.13 = 1.24865
\]
\[
r_n = 1.24865 - 1 = 0.24865 = 24.865\%
\]

So, the nominal rate of return is approximately **24.87%**.

Would you like more details or have any questions?

Here are 5 related questions:
1. What is the difference between nominal and real rates of return?
2. How does inflation affect the nominal rate of return?
3. If the inflation rate decreases, how would the nominal return be affected?
4. How can the real rate of return remain positive even when inflation is high?
5. What other factors besides inflation influence nominal returns?

**Tip:** The nominal rate of return is always higher than the real rate when inflation is positive.

Suppose an investment gave you a real rate of return of 10.50%. If the inflation rate was 13.00%, what was your nominal rate of return?

Learn how to calculate the nominal rate of return when given a real rate of 10.50% and an inflation rate of 13.00%. This solution includes step-by-step instructions using the Fisher Equation. Suitable for students in Grades 11-12.

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