An investment offers a 15.0 percent total return over the coming year. Bill Bern

Question

An investment offers a 15.0 percent total return over the coming year. Bill Bernanke thinks the total real return on this investment will be only 5.5 percent. What does Bill believe the inflation rate will be over the next year?

rev: 09_18_2012

a.) 11.71%

b.) 10.36%

c.) 9.00%

d.) 6.30%

e.) -8.26%

An investment offers a 15.0 percent total return over the coming year. Bill Bernanke thinks the total real return on this investment will be only 5.5 percent. What does Bill believe the inflation rate will be over the next year?

Explanation / Answer

(1+Total return) = (1+Real return) (1+Inflation rate)

=> (1+15.00%) = (1+5.50%) (1+Inflation rate)

=> Inflation rate = 9.00% which is option (c).

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.