Question

Say you own an asset that had a total return last year of 18 percent. Assume the inflation rate last year was 4.5 percent. What was your real return?

Answer 1

To calculate the real return, subtract the inflation rate from the total return and convert the decimal to a percentage.

Step-by-step explanation:

To calculate the real return, we need to subtract the inflation rate from the total return. In this case, the total return was 18 percent and the inflation rate was 4.5 percent.

Step 1: Convert the percentages to decimal form by dividing by 100. The total return becomes 0.18 and the inflation rate becomes 0.045.

Step 2: Subtract the inflation rate from the total return. 0.18 - 0.045 = 0.135.

Step 3: Convert the decimal back to a percentage by multiplying by 100. 0.135 * 100 = 13.5%.

Therefore, the real return is 13.5%.