George bought an investment one year ago and just calculated his return on inves

Question

George bought an investment one year ago and just calculated his return on investment. He found that his purchasing power has increased by 15% as a result of his investment. If the inflation over the period was 4%, his _______________.
Note: (1+R) = (1+r)(1+h), but you don’t need calculation here.

A. real return on investment is more than 15%

B. nominal return on investment is more than 15%

C. nominal return on investment is 11%

D. real return on investment is equal to 4%

A. real return on investment is more than 15%

B. nominal return on investment is more than 15%

C. nominal return on investment is 11%

D. real return on investment is equal to 4%

Explanation / Answer

In the given situation purchasing power has increased by 15%. It means the real rate of return is 15%.

We know that real rate of return is always less than Nominal rate if there is inflation.

So we can say that nominal rate of return on investment is more than 15%.

Hence the correct answer shall be :

B. nominal return on investment is more than 15%

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