You have $5,000 in a 36 month Certificate of Deposit that has an APR of 3.75%. If inflation averages 4.25% during these 36 months, what is the real return on your CD?

Question

Quizplus · Accepted Answer

The real return is calculated as the nominal return minus the inflation rate. The nominal return in this case is 3.75%, and the average inflation rate is 4.25%. Therefore, the real return is -0.50% (3.75% - 4.25% = -0.50%). This means that the value of your investment in real terms has decreased by 0.50% over the 36 months.

You Have $5,000 in a 36 Month Certificate of Deposit