A year ago,you invested $2,500 in a savings account that pays an annual interest rate of 2.5%.What is your approximate annual real rate of return if the rate of inflation was 3.4% over the year?
A)0.9%.
B)-0.9%.
C)5.9%.
D)3.4%.
E)none of the above.

Question

Quizplus · Accepted Answer

The real rate of return is calculated as the nominal rate of return minus the rate of inflation. So, the approximate annual real rate of return is:
2.5% - 3.4% = -0.9%
Since the real rate of return is negative, it means that the purchasing power of your investment decreased over the year after taking inflation into account.

A Year Ago,you Invested $2,500 in a Savings Account That