A year ago, you invested $12,000 in an investment that produced a return of 16%. What is your approximate annual real rate of return if the rate of inflation was 4% over the year?
A) 18%
B) 2%
C) 12%
D) 15%

Question

Quizplus · Accepted Answer

The real rate of return adjusts the nominal return (16%) for the effect of inflation (4%). Using the approximation formula for real return = nominal return - inflation rate, we get 16% - 4% = 12%.

A Year Ago, You Invested $12,000 in an Investment That