Mr.X invests $1,000 at a 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)$1,100
B)$1,000
C)$1,058
D)$1,040

Question

Quizplus · Accepted Answer

The real value of the investment is the nominal interest minus the inflation rate.

Nominal interest = $1,000 x 10% = $100 
Inflation rate = 4%

Real value = $100 - ($1,000 x 4%) = $100 - $40 = $60

So, the final value of the investment in real terms is $1,000 + $60 = $1,060.

Therefore, the best choice is C.

MrX Invests $1,000 at a 10% Nominal Rate for One