Question

An investment had a nominal return of 10.7 percent last year. If the real return on the investment was only 6.5 percent, what was the inflation rate for the year?

Answer 1

Answer:

(1+0.103) =(1+0.057)(1+ Inflation rate)

1.103 =1.057 * (1+ Inflation rate)

1.103/1.057 = 1+ Inflation rate

1.0435 = 1+ inflation rate

Inflation rate = 0.0435 i.e. 4.35%