Consider a portfolio that offers an expected rate

Asked by maham237 @ 09/01/2021 in Business viewed by 240 People

1 point
6. A combination of stocks and bond portfolio offers Mike Spangler a rate of return of 8.5%. Considering the inflation rate of
395, what is the actual (real) rate of return?
O 7.33%
5.330
3.33%

Answered by maham237 @ 09/01/2021

Answer:

5.33%

Explanation:

From the question,

We have the following:

Nominal rate was put at = 8.5% = 0.085

Rate of inflation = 3% = 0.03

The formula for actual or real rate of return =

= [(1 + nominal rate)/(1+inflation rate)]-1

= (1 + 0.085/1+0.03)-1

= (1.085/1.03)-1

= 1.0533-1

= 0.0533 x 100

= 5.33%

In conclusion, the actual or real rate of return is 5.33 percent

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