An investor earned a 5% nominal rate of return over the year. However, over the year, prices increased by 2%. The investor's real rate of return was less than his nominal rate of return.

Question

Quizplus · Accepted Answer

The real rate of return is calculated by subtracting the rate of inflation from the nominal rate of return. In this case, the real rate of return is 5% - 2% = 3%, which is less than the nominal rate of return of 5%. Therefore, the answer is true.

An Investor Earned a 5% Nominal Rate of Return Over