An investment offers a total return of 11 percent over the coming year. Alex Hamilton thinks the total real return on this investment will be only 8.4 percent. What does Alex believe the inflation rate will be over the next year

Inflation rate = 2.40%

Explanation:

One of the factors that affects interest rate is the inflation rate. The fishers equation gives the relationship between inflation rate, real interest rate and nominal interest rate.

The relationship is given as follows:

(1 + N) = (1 + r) (1 + f)

n - nominal interest rate, r - real interest rate, inflation rate

f = ((1 + N) / (1 + r)) - 1

= (1.11 / 1.084) - 1

= 0.02398524 * 100

= 2.40%

Inflation rate = 2.40%