You purchase a certificate of deposit and expect an inflation rate of 1.5% over the next year. Your nominal rate of interest is 2.25%. What is your expected real rate of return?
A)2.25%
B)0.75%
C)-0.75%
D)3.75%

Question

Quizplus · Accepted Answer

The real rate of return is calculated by subtracting the expected inflation rate from the nominal interest rate. Therefore, the expected real rate of return is 0.75% (2.25% - 1.5%).

You Purchase a Certificate of Deposit and Expect an Inflation