Question

What is your real rate of return is your savings account pays 2.5% interest and inflation is at 1%

Answer 1

Answer:

1.5

Step-by-step explanation:

The real rate of return is calculated as the difference between rate of interest and the inflation.

so,Interest=2.5%

Inflation=1%

=2.5-1

=1.5%

Answer 2

Answer:

1.485 % ( approx )

Step-by-step explanation:

We know that,

$\text{Real rate of return}=\frac{1+\text{Nominal rate}}{1+\text{Inflation rate}}-1$

Given,

Nominal rate = 2.5 % = 0.025

Inflation rate = 1 % = 0.01,

$\implies \text{Real rate of return}=\frac{1+0.025}{1+0.01}-1$

$=\frac{1.025}{1.01}-1$

$=1.01485149-1=0.01485149\approx 0.01485$

Thus, the real rate of return is 0.01485 or 1.485 %.