Test Index

Time Value of Money

Question : 55 of 99

Marks: +1, -0

Nominal Rate of Return =

Solution:

Concept:

Nominal rate of return is the rate before adjusting for inflation.

Explanation:

The relationship between nominal rate (

R_n

), real rate (

R_r

), and inflation (

i

) is:

(1 + R_n) = (1 + R_r)(1 + i)

For small rates, this approximates to

R_n \approx R_r + i

Therefore, nominal rate equals real rate plus inflation.

Answer:

Option B: Real Rate of Return + Inflation

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