Mr. X invests $1000 at 10% nominal rate for one year. If the inflation rate is 4%, what is the real value of the investment at the end of one year?
A) $1100
B) $1000
C) $1058
D) None of the above

Question

Quizplus · Accepted Answer

The nominal rate is 10%, which means Mr. X earns $100 in interest. However, the inflation rate is 4%, which means the real value of his investment at the end of one year is only $1000 + $100 - ($1000 + $100)*0.04 = $1056. Therefore, the best choice is C) $1058, as it is the closest value listed to the real value of the investment.

Mr X Invests $1000 at 10% Nominal Rate for One