An investment offers a total return of 10 percent over the coming year. Janice Yellen thinks the total real return on this investment will be only 5 percent. What does Janice believe the inflation rate will be over the next year?

According to Janice belief, inflation rate over the next year must be 5%

Step-by-step explanation:

Before trying to dig deeper in the problem, we need to know the conceptual difference between the real and nominal interest rate.

Nominal interest rate - Interest rate that is derived at current price without factoring in the inflation of the economy is called as nominal interest rate. It is sometimes denoted as total interest rate, final interest rate etc.

Real interest rate - it is the rate derived at the fixed price after factoring in the rate of inflation.

Other variables remaining constant, Nominal interest rate = real interest rate + inflation

Inflation = nominal interest - real interest

Putting the values of nominal and real interest rate

Inflation = 10-5 = 5%

Hence the inflation is expected to be 5%