A year ago, you invested $10,000 in a savings account that pays an annual interest rate of 5%. What is your approximate annual real rate of return if the rate of inflation was 1.5% over the year?
A) 3.5%
B) 10%
C) 7%
D) 4%
E) None of the options are correct.

Question

Quizplus · Accepted Answer

The real rate of return adjusts the nominal rate (5%) for the effect of inflation (1.5%), calculated as approximately 5% - 1.5% = 3.5%.

A Year Ago, You Invested $10,000 in a Savings Account