An investment today of $25,000 promises to return $10,000 annually for the next 3 years.What is the approximate real rate of return on this investment if inflation averages 6% annually during the period?
A) 3.5%
B) 9.7%
C) 14.0%
D) 20.0%

Question

Quizplus · Accepted Answer

The real rate of return is the nominal rate of return minus the inflation rate. In this case, the nominal rate of return is 10,000/25,000 = 40%. The inflation rate is 6%. Therefore, the real rate of return is 40% - 6% = 34%.

An Investment Today of $25,000 Promises to Return $10,000 Annually