An investment had a nominal return of 10.2 percent last year. The inflation rate was 3.7 percent. What was the real return on the investment?

Multiple Choice

14.28%

5.90%

6.27%

6.96%

10.09%

To find the **real return** on an investment, we use the **Fisher equation**, which accounts for the impact of inflation. The formula is:

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

Given:
- Nominal Return = 10.2% = 0.102
- Inflation Rate = 3.7% = 0.037

Substitute the values into the equation:

\[
\text{Real Return} = \frac{1 + 0.102}{1 + 0.037} - 1
\]

Let's calculate it.

\[
\text{Real Return} = \frac{1.102}{1.037} - 1
\]
\[
\text{Real Return} = 1.0627 - 1 = 0.0627
\]

Converting to percentage:

\[
\text{Real Return} = 6.27\%
\]

Therefore, the real return on the investment is **6.27%**.

The correct answer is:

**6.27%**

Would you like more details or have any other questions?

Here are 5 related questions for deeper understanding:
1. How does inflation impact the real return on investment?
2. Can the real return ever be higher than the nominal return?
3. How does compounding affect the real return over multiple years?
4. What is the relationship between interest rates and inflation in real returns?
5. How do you calculate nominal returns for multiple investment periods?

**Tip**: The real return reflects the true increase in purchasing power, while the nominal return doesn't account for inflation.

An investment had a nominal return of 10.2 percent last year. The inflation rate was 3.7 percent. What was the real return on the investment?

Learn how to calculate the real return on an investment with a nominal return of 10.2% and an inflation rate of 3.7% using the Fisher equation. This detailed solution breaks down the formula and helps you understand the impact of inflation. Suitable for high school students in Grades 10-12.

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