You're considering an investment that you expect will produce a return of 10 percent next year, and you expect that your real rate of return on this investment will be 7 percent. What do you expect inflation to be next year? The expected inflation rate next year will be

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Business

Shelly

20 June, 13:58

You're considering an investment that you expect will produce a return of 10 percent next year, and you expect that your real rate of return on this investment will be 7 percent. What do you expect inflation to be next year? The expected inflation rate next year will be

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Answers (2)

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Natalya Flowers · Answer 1

Answer: The expected inflation rate next year will be:v 2,80%

Explanation: The formula used is: Inflation Rate = ((1 + Nominal Rate of Interest) / (1 + Real Rate of Interest)) - 1

So:

Inflation rate = ((1 + 0,1) / (1 + 0,07)) - 1 = 0,02803 x 100 = 2,80%.

Baron Saunders · Answer 2

Inflation = 3%

Explanation:

Giving the following information:

You're considering an investment that you expect will produce a return of 10 percent next year, and you expect that your real rate of return on this investment will be 7.

Inflation = interest rate - real interest rate

Inflation = 10 - 7 = 3%