You purchased an investment for $1,000 on which you earned $120 investment last year. The inflation rate during that time was 3%. What was your real rate of return?

Question

Quizplus · Accepted Answer

Real rate of return = [(1 + nominal rate of return) / (1 + inflation rate)] - 1
= [(1 + 120/1000) / (1 + 3%)] - 1
= 9.03% - 3%
= 6.03%
Therefore, the real rate of return is 6.03%, which is option B.

You Purchased an Investment for $1,000 on Which You Earned