An investment offers a 12 percent total return over the coming year. Bill Bernan

Question

An investment offers a 12 percent total return over the coming year. Bill Bernanke thinks the total real return on this investment will be only 7.3 percent.

What does Bill believe the inflation rate will be over the next year? (Do not include the percent sign (%). Enter rounded answer as directed, but do not use the rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

What does Bill believe the inflation rate will be over the next year? (Do not include the percent sign (%). Enter rounded answer as directed, but do not use the rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Explanation / Answer

Nominal rate of interest 12% Real return 7.30% Inflation Rate = Nominal Rate - Real Rate Inflation Rate = 12% - 7.3% Inflation Rate = 4.7%

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