Question

You are an excellent investor and have averaged a 12% rate of return over the last 20 years. Over the same time period, inflation has averaged 3.2%. What is the real rate of return you have earned on your investments?

Answer 1

Answer:

real rate of return =  8.8%

Explanation:

given data

nominal rate of return = 12 %

time = 20 year

inflation rate = 3.2%

solution

we will apply here Nominal rate of return to get real rate of return that  is

nominal rate of return = Real rate of return + Inflation rate    ......................1

put here value and we will get real rate of return

real rate of return = nominal rate of return  - inflation rate

real rate of return =  12% - 3.2%

real rate of return =  8.8%