Answer: my real return will be 5.22%
Explanation: The nominal rate of return is the stated interest rate on an account. The real rate of return describes the actual return after inflation is considered.
The relationship between the nominal rate of return and the real rate of return is shown by this equation:
real interest rate = nominal interest rate − rate of inflation.
From questions 1 and 2, we know that this simple economy has an inflation rate of 2.22%.
The account at Bank StarOne has a stated, or nominal, interest rate of 3%. So, this would be the real rate of return:
3% − 2.22% = 0.78%.
Frankie incorrectly identifies the real return on this account as 5.22% because he added the inflation rate instead of subtracting it.
Hope this helped! :)
