Question

# The Costaguanan stock market provided a rate of return of 90%. The inflation rate in Costaguana...

The Costaguanan stock market provided a rate of return of 90%. The inflation rate in Costaguana during the year was 75%. In Ruritania the stock market return was 13%, but the inflation rate was only 2%.

a. Calculate the real rate of return for Costaguanan stock market? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

b. Calculate the real rate of return for Ruritania stock market? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

c. Which country's stock market provided the higher real rate of return?

#### Homework Answers

Answer #1
 a) r = (i-g)/(1+g) Where, r = real interest rate i=nominal interest rate g= inflation rate = (0.9-0.75/ (1+0.75) =8.57% b) r = (i-g)/(1+g) Where, r = real interest rate i=nominal interest rate g= inflation rate = (0.13-0.02/ (1+0.02) =10.78% c) Ruritania stock market provides higher real rate of return.
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