Question

An investment offers a total return of 13.8 percent over the coming year. You believe the total real return will be only 9.4 percent. What do you believe the exact inflation rate will be for the next year?

Answer 1

Answer:

you would believe that the exact inflation rate will be 4.02% for the next year.

Explanation:

exact inflation rate = (1 + nominal return)/(1 + real return) -1

                                = 1.138/1.094 -1

                                = 4.02%

Therefore, you would believe that the exact inflation rate will be 4.02% for the next year.