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Real Rate of Return

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If the nominal interest rate is 7.5% and the expected inflation rate is 4%, what is the real rate of interest?

a) Less than 3.5%
b) Exactly 3.5%
c) Between 3.5% and 3.7%
d) Over 3.7% but less than 11.5%
e) Exactly 11.5%
f) More than 11.5%
g) The real rate of interest cannot be determined from the information provided.

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Solution Summary

The solution computes the real rate of return with given nominal and expected inflation rate.

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Nominal interest is composed of the real interest rate plus inflation, among other factors. A ...

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