Question

Suppose you invest ?$140,000 today and in 8 years have $220,000. At the time of your...

Suppose you invest ?$140,000 today and in 8 years have $220,000. At the time of your investment the Consumer Price Index? (CPI) is 110.

Assume that in 8 years the CPI is 177.

?(answer to two? decimals; eg,? 12.34%)

a. What is your nominal annual rate of? return? %

b. What is your real annual rate of? return??%

c. What is the average annual inflation? rate? %

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Answer #1

a)

Nominal annual rate of return is 5.81%

b)

Real annual rate of return was 5%

c)

Average annual inflation:

= 5.81%-5%

= 0.81%

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