What nominal annual return is required on an investment in order that an investor experiences a 12 percent gain in purchasing power? Assume inflation to be 4 percent.
A)7.69 percent
B)9.29 percent
C)12.00 percent
D)16.48 percent

Question

Quizplus · Accepted Answer

To achieve a 12% real return with 4% inflation, the nominal return must be calculated using the formula: (1 + nominal return) = (1 + real return) * (1 + inflation rate). Solving gives a nominal return of approximately 16.48%.

What Nominal Annual Return Is Required on an Investment in Order