If the nominal rate of return on an investment is 7.5% and the real rate of return is 5.2%, the long-run average inflation rate is _____.
A) 1.44%
B) 2.3%
C) 12.7%
D) 21.5%

Question

Quizplus · Accepted Answer

The relationship between nominal return, real return, and inflation can be described by the Fisher equation, which is approximately: nominal return = real return + inflation rate. Therefore, the inflation rate is approximately 7.5% - 5.2% = 2.3%.

If the Nominal Rate of Return on an Investment Is