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An investment offers a total return of 12.3 percent over the coming year. Janice Yellen thinks the total real return on this investment will be only 8 percent.
What does Janice believe the inflation rate will be over the next year?

Respuesta :

Answer:

Inflation rate will be 3.9 %

Explanation:

We have given nominal rate = 12.3 %

Real rate = 8%

We have to find the inflation rate

We know that [tex]1+real\ rate=\frac{1+nominal\ rate}{1+inflation\ rate}[/tex]

[tex]1+0.08=\frac{1+0.123}{1+inflation\ rate}[/tex]

[tex]1.08=\frac{1+0.123}{1+inflation\ rate}[/tex]

1.08 + 1.08 inflation rate = 1 + 0.123

1.08 inflation rate = 1.123 - 1.08

1.08 inflation rate = 0.043

So inflation rate [tex]=\frac{0.043}{1.08}=0.039=3.9[/tex] %

So inflation rate will be 3.9 %

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