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8 February, 06:01

Q4) An investment offers a total return of 12.8 percent over the coming year. Janice thinks the total real return on this investment will be only 7 percent. What does Janice believe the approximate inflation rate will be over the next year

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  1. 8 February, 06:14
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    inflation rate = 5.8%

    Explanation:

    Giving the following information:

    An investment offers a total return of 12.8 percent over the coming year. Janice thinks the total real return on this investment will be only 7 percent.

    The real return on investment includes the effect on inflation.

    Real rate of return = total return - inflation rate

    0.07=0.128 - inflation rate

    inflation rate = 0.058 = 5.8%
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