How much would an investor need to receive in nominal return if she desires a real return of 4 percent and the rate of inflation is 5 percent?
A)4.20 percent
B)8.64 percent
C)9.00 percent
D)9.20 percent 1.04 = 1 + nominal return/1.05

Question

Quizplus · Accepted Answer

To calculate the required nominal return, we need to use the Fisher Equation: 
Nominal Return = (1 + Real Return) x (1 + Inflation Rate) - 1 
Plugging in the given values, we get: 
Nominal Return = (1 + 0.04) x (1 + 0.05) - 1 
Nominal Return = 1.092 or 9.2% 
Therefore, the investor would need to receive a nominal return of 9.2% to achieve a real return of 4% when inflation is 5%. Option D is the closest choice to this answer.

How Much Would an Investor Need to Receive in Nominal