If $100 is invested for one year at 8% p.a. and inflation during the same period is 3%, the real value of the investment at the end of the year is:
A) $104.85.
B) $103.00.
C) $104.76.
D) $105.00.

Question

Quizplus · Accepted Answer

The real value of the investment is the nominal value adjusted for inflation. The nominal value is $100 and the inflation rate is 3%. So, the real value of the investment is $100 * (1 - 0.03) = $97.00. The interest rate is 8%, so the nominal value of the investment at the end of the year is $100 * (1 + 0.08) = $108.00. So, the real value of the investment at the end of the year is $108.00 * (1 - 0.03) = $104.85.

If $100 Is Invested for One Year at 8% P