Say you own an asset that had a total return last year of 15 percent. Assume the inflation rate last year was 3.9 percent. Required: What was your real return? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) Real return % Explanation: The Fisher equation, which shows the exact relationship between nominal interest rates, real interest rates, and inflation, is: (1 + R) = (1 + r)(1 + h) r = [(1 + .15) / (1 + .039)] – 1 r = .1068, or 10.68%

Say you own an asset that had a total return last year of 15 percent. Assume the inflation rate last year was 3.9 percent.

Required:

What was your real return? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Real return

%

Explanation:

The Fisher equation, which shows the exact relationship between nominal interest rates, real interest rates, and inflation, is:

(1 + R) = (1 + r)(1 + h)

r = [(1 + .15) / (1 + .039)] – 1

r = .1068, or 10.68%