Respuesta :
Answer:
The expected real rate of return for this investment is -0.21 or -21%
Explanation:
[tex]CPI_{i}[/tex] = 241, [tex]CPI_{t}[/tex] = 358, nominal rate of return = 5% = 0.05
Calculating for inflation rate, we have:
Inflation rate (IR) = [tex]\frac{CPI _t - CPI _i}{CPI _t}[/tex] * 100% = [tex]\frac{358 - 241}{358}[/tex] * 100%
IR = 32.68% ≈ 33% or 0.33
Calculating for inflation rate, we have:
Real rate of return = [tex](\frac{1 + Nominal rate}{1 + Inflation rate}) - 1[/tex]
RR = [tex](\frac{1 + NR}{1 + IR}) - 1[/tex] = [tex](\frac{1 + 0.05}{1 + 0.33}) - 1[/tex]
RR = -0.21 or -21%
The investment loses value over the next 20 years
