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An investment had a nominal return of 10.3 percent last year. If the real return on investment was only 5.7 percent, what was the inflation rate for the year?

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

ChapterP2: Part 2: Exchange Rate Behavior

Section: Chapter Questions

Problem 3Q

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Concept explainers

Interest Rate

When you deposit your money with the bank, the deposit earns you some extra money at the end of the specific period – something more than what you deposited. That amount of money that the bank pays you for keeping the money with the bank is the “interest” and the percentage at which the bank pays you for your amount is called the “interest rate”.

Question

An investment had a nominal return of 10.3 percent last year. If the real return on investment was only 5.7 percent, what was the inflation rate for the year?

Formula Formula ROI (%) = Net Income Principal Amount × 100

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