Brad wants to make an investment that will have a real growth rate of 12%. If the current inflation rate is 2.38%, what annual interest rate will he need to get on his investment to accomplish his goal?
A) 8.65%
B) 9.40%
C) 14.67%
D) 15.82%

Question

Quizplus · Accepted Answer

To achieve a real growth rate of 12% in the presence of a 2.38% inflation rate, Brad needs to find an investment that offers a nominal interest rate that combines both the desired real growth and the inflation rate. This can be calculated using the formula: (1 + real growth rate) * (1 + inflation rate) - 1. Plugging in the numbers: (1 + 0.12) * (1 + 0.0238) - 1 = 1.12 * 1.0238 - 1 ≈ 0.1467 or 14.67%.

Brad Wants to Make an Investment That Will Have a Real