What is the real rate of return if the risk-free rate is 3.25% and the expected rate of inflation is 2.75%?

Question

Quizplus · Accepted Answer

The real rate of return can be calculated using the Fisher equation:

Real rate of return = (1 + nominal rate) / (1 + inflation rate) - 1

Plugging in the numbers, we get:

Real rate of return = (1 + 3.25%) / (1 + 2.75%) - 1 
Real rate of return = 1.0325 / 1.0275 - 1 
Real rate of return = 1.00487 - 1 
Real rate of return = 0.00487 or 0.487%

Therefore, the best choice is C.

What Is the Real Rate of Return If the Risk-Free