An investment today of $25,000 promises to return $10,000 annually for the next 3 years.What is the real rate of return on this investment if inflation averages 6% annually during the period?
A) 3.49%
B) 9.78%
C) 4.84%
D) 6.38%

Question

Quizplus · Accepted Answer

Using a financial calculator:n = 3, PV = −$25,000, PMT = $10,000, FV = $0, CPT i/Y = 9.701%Real return = 1.09701 / 1.06 − 1 = 0.0349, or 3.49%

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