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An investment offers a total return of 13 percent over the coming year. Alan Wingspan thinks the total real return on this investment will be only 8 percent. What does Alan believe the inflation rate will be over the next year?

Answer :

Answer:

4.63%

Explanation:

( 1 + Nominal Rate ) = ( 1 + Real Rate ) * ( 1 + Inflation Rate )

= 1.13 = 1.08 x ( 1 + Inflation Rate )

1.046296 = 1 + inflation rate

Inflation rate = 0.046296 = 4.63%

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