A year ago, you invested $1,000 in a savings account that pays an annual interest rate of 4.3%. What is your approximate annual real rate of return if the rate of inflation was 3% over the year?

Question

Quizplus · Accepted Answer

The real rate of return adjusts the observed (nominal) rate of return for inflation to reflect the actual increase in purchasing power. The formula to calculate the real rate of return is approximately given by the nominal rate of return minus the inflation rate. Therefore, the real rate of return = 4.3% - 3% = 1.3%. Since none of the provided options matches this calculation, the correct answer is E) None of the options.

A Year Ago, You Invested $1,000 in a Savings Account