Mr. X invested $5,000 for a period of 2 years. The investment plan offered a nominal rate of return of 6% on the investment.
-Refer to the scenario above. If the long-run inflation rate in the economy is 3.4%, the real rate of return on his investment will be____.

Question

Quizplus · Accepted Answer

The real rate of return can be calculated using the Fisher equation, which is approximately given by the nominal rate of return minus the inflation rate. Therefore, 6% - 3.4% = 2.6%.

Mr X Invested $5,000 for a Period of 2 Years