Math Problem Statement
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?
Solution
To calculate the nominal rate of return, we can use the following formula:
Where:
- is the nominal rate of return
- is the real rate of return (10.50% or 0.105)
- is the inflation rate (13.00% or 0.13)
Now, let's solve for :
So, the nominal rate of return is approximately 24.87%.
Would you like more details or have any questions?
Here are 5 related questions:
- What is the difference between nominal and real rates of return?
- How does inflation affect the nominal rate of return?
- If the inflation rate decreases, how would the nominal return be affected?
- How can the real rate of return remain positive even when inflation is high?
- 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.
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Math Problem Analysis
Mathematical Concepts
Algebra
Inflation
Rates of Return
Formulas
1 + r_n = (1 + r_r) × (1 + i)
r_n = (1 + r_r) × (1 + i) - 1
Theorems
Fisher Equation (relation between nominal, real rates of return, and inflation)
Suitable Grade Level
Grades 11-12
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