Suppose you have $400 to invest at a nominal interest rate of 5 percent. If the inflation rate is 2 percent, then the real return on your investment is approximately
A) $12.
B) $20.
C) $28.
D) $36.

Question

Quizplus · Accepted Answer

The real return can be calculated using the formula for the real interest rate: real interest rate = nominal interest rate - inflation rate. Here, it's 5% - 2% = 3%. To find the real return on a $400 investment, multiply 3% (or 0.03) by $400, which equals $12.

Suppose You Have $400 to Invest at a Nominal Interest