An investment had a nominal return of 11.4 percent last year. The inflation rate was 3.8 percent. What was the real return on the investment?

Multiple Choice

6.82%

7.32%

15.63%

8.14%

11.23%

To find the real return on the investment, we can use the formula for real return:

\[
\text{Real Return} = \frac{1 + \text{Nominal Return}}{1 + \text{Inflation Rate}} - 1
\]

1. **Convert percentages to decimals**:
   - Nominal Return: \( 11.4\% = 0.114 \)
   - Inflation Rate: \( 3.8\% = 0.038 \)

2. **Plug values into the formula**:
   \[
   \text{Real Return} = \frac{1 + 0.114}{1 + 0.038} - 1
   \]

3. **Calculate**:
   \[
   \text{Real Return} = \frac{1.114}{1.038} - 1 \approx 0.0732 \text{ or } 7.32\%
   \]

### Answer:
The real return on the investment is **7.32%**.

Would you like more details or have questions about this calculation?

---

1. How is the real return affected by higher inflation rates?
2. What would happen to the real return if the nominal return decreased?
3. Why is it important to consider real return rather than just nominal return?
4. How does compounding impact real returns over multiple years?
5. Can real return ever be negative, and what would that mean for an investment?

**Tip:** Real return gives a more accurate sense of purchasing power gained from an investment after adjusting for inflation.

An investment had a nominal return of 11.4 percent last year. The inflation rate was 3.8 percent. What was the real return on the investment?

Determine the real return on an investment with a nominal return of 11.4% and an inflation rate of 3.8%. This problem demonstrates key finance concepts and the formula for calculating real return. Suitable for students in Grades 10-12.

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