Asked by Dakota Swader on Jun 18, 2024
Verified
The nominal rate of return minus the inflation rate is called the:
A) Compound rate.
B) Indexed rate.
C) Approximate real rate.
D) Exact real rate.
E) Base rate.
Nominal Rate
The interest rate stated on a loan or investment agreement before any adjustment for inflation or other factors.
Inflation Rate
The percentage increase in the general level of prices for goods and services in a country over a period of time.
Real Rate
The Real Rate refers to the interest rate adjusted for inflation, representing the true cost of borrowing or the true return on investment.
- Calculate and interpret the real rate of return and its relationship with inflation.
Verified Answer
TA
Torin AschleJun 19, 2024
Final Answer :
C
Explanation :
The nominal rate of return minus the inflation rate gives the approximate real rate of return, which adjusts the nominal return for the effect of inflation to show the real purchasing power of the earnings.
Learning Objectives
- Calculate and interpret the real rate of return and its relationship with inflation.