Nominal and Real Returns – An investment offers a 14% total return over the coming year

Finance Dec 01, 2020

Nominal and Real Returns – An investment offers a 14% total return over the coming year. Bill Morneau thinks the total real return on this investment will be only 9%. What does Morneau believe the inflation rate will be over the next year?

Expert Solution

Ans 4.59%

Inflation Rate = ( 1 + Nominal Return) / (1 + Real Rate) - 1

= ( 1 + 14%) / (1 + 9%) - 1

= 4.59%

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