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 (1 + real rate) x (1 + inflation rate) = 1 + nominal rate

Question

Quizplus · Accepted Answer

To achieve a 12% real gain with 4% inflation, the nominal rate is calculated as (1 + 0.12) x (1 + 0.04) - 1 = 0.1648 or 16.48%.

What Nominal Annual Return Is Required on an Investment in Order