Question

In a certain year, if your return on investment is 3.00% and the inflation rate during that same year is 2.40%, what is your real rate of return? (Use two decimal places when solving this problem)

Answer 1

To calculate the real rate of return on an investment after adjusting for inflation, subtract the inflation rate from the nominal return. With a nominal return of 3.00% and an inflation rate of 2.40%, the real rate of return is 0.60%.

Step-by-step explanation:

The student is asking how to calculate the real rate of return on an investment taking into consideration the inflation rate. To find the real rate of return, we need to account for the effects of inflation on the nominal rate of return.

The formula for calculating the real rate of return is:

Real Return = Nominal Return - Inflation Rate

Given that the nominal return on investment is 3.00% and the inflation rate is 2.40%, the calculation will be:

Real Return = 3.00% - 2.40% = 0.60%

Therefore, the real rate of return, adjusted for inflation, would be 0.60% (rounded to two decimal places).