You purchased an investment for $1,000 on which you earned $120 last year.The inflation rate during that time was 3%.What was your real rate of return?
A)3%
B)9%
C)12%
D)15%
E)None of the above

Question

Quizplus · Accepted Answer

Real rate of return = (1 + nominal rate)/(1 + inflation rate) - 1
Real rate of return = (1 + 120/1000)/(1 + 0.03) - 1
Real rate of return = 0.117 or 11.7%
Therefore, the real rate of return is closest to 9%.

You Purchased an Investment for $1,000 on Which You Earned