You presently own stock that you purchased one year ago. Your return on the stock for the past year was 25%. You calculate your real return on investment was 13.63%. The rate of inflation must have been __________.

Question

Quizplus · Accepted Answer

The real return is calculated using the formula: Real Return = (1 + Nominal Return) / (1 + Inflation Rate) - 1. Plugging in the values: 0.1363 = (1 + 0.25) / (1 + Inflation Rate) - 1. Solving for the inflation rate gives approximately 10%.

You Presently Own Stock That You Purchased One Year Ago