We Can Approximate the Real Return on an Investment by Subtracting

question 2

Multiple Choice

We can approximate the real return on an investment by subtracting the inflation rate from the nominal return on the investment. For example, an investment that returns 10% per year while inflation is 4% per year has a real (inflation adjusted) return of approximately 6%. Which of the following outcomes is NOT possible?

• A) Nominal and real returns are positive
• B) Nominal return is positive, real return is negative
• C) Nominal return is negative, real return is positive
• D) all of these outcomes are possible

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