Nico invested an amount a year ago and calculated his return on investment. He found that his purchasing power had increased by 15 percent as a result of his investment. If inflation during the year was 4 percent, then Nico's ________.
A) real return on investment is more than 15 percent
B) nominal return on investment is more than 15 percent
C) nominal return on investment is less than 11 percent
D) real return on investment is equal to 4 percent

Question

Quizplus · Accepted Answer

Nico's nominal return on investment accounts for the total increase in his purchasing power, including the effects of inflation. Since his purchasing power increased by 15 percent in an environment where inflation was 4 percent, his nominal return must be more than 15 percent to not only overcome the inflation but also provide an additional increase in purchasing power.

Nico Invested an Amount a Year Ago and Calculated His