An investment offers a total return of 13 percent over the coming year. Janice Y

Question

An investment offers a total return of 13 percent over the coming year. Janice Yellen thinks the total real return on this investment will be only 9 percent.

What does Janice believe the inflation rate will be over the next year? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

An investment offers a total return of 13 percent over the coming year. Janice Yellen thinks the total real return on this investment will be only 9 percent.

Explanation / Answer

Answer:

(1+Nominal rate) = (1+Inflation rate) * (1+Real Rate of return)

=> (1+0.13) = (1+Inflation rate) * (1+0.09) => (1+Inflation rate) = 1.13/1.09 => Inflation rate = 3.67% (ans)

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