If an investor had a $25,000 long-term capital gain on a $100,000 investment from 1984 to 2010, her real rate of return was most likely
A)equal to the expected rate of inflation.
B)equal to the nominal rate of inflation.
C)zero.
D)negative.

Question

Quizplus · Accepted Answer

The real rate of return is the nominal rate of return minus the expected rate of inflation. In this case, the nominal rate of return is 25% ($25,000/$100,000). The expected rate of inflation over the period from 1984 to 2010 was 3.2%. Therefore, the real rate of return is 25% - 3.2% = 21.8%.

If an Investor Had a $25,000 Long-Term Capital Gain on a $100,000