Suppose you have $400 to invest at a nominal interest rate of 7 percent, and the investment's term to maturity is 1 year. If the inflation rate is 2 percent, then the real return on your investment is approximately

Question

Quizplus · Accepted Answer

The nominal return is 7% of $400, which is $28. The real return is the nominal return minus the inflation rate, so $28 - (2% of $400) = $28 - $8 = $20.

Suppose You Have $400 to Invest at a Nominal Interest