If the nominal interest rate is 5.6 percent and the rate of inflation is 7.1 percent in a given year,then what is the corresponding real rate of return?
A)12 .7 percent
B)1.5 percent
C)-1.5 percent
D)-12.7 percent

Question

Quizplus · Accepted Answer

To calculate real rate of return, we subtract the rate of inflation from the nominal interest rate. Therefore, real rate of return = nominal interest rate - inflation rate = 5.6% - 7.1% = -1.5%. A negative real rate of return indicates that the purchasing power of the investment has decreased after accounting for inflation.

If the Nominal Interest Rate Is 5