savings account\nbeginning balance $1,000\napr 3%\nannual inflation rate 2%\naccount balance $1,030\nwhat is…
savings account\nbeginning balance $1,000\napr 3%\nannual inflation rate 2%\naccount balance $1,030\nwhat is the real rate of return?\n0\n1%\n2%\n3%
Answer
Explanation:
Step1: Recall the real - rate - of - return formula
The approximate formula for the real rate of return $r$ is $r = i - \pi$, where $i$ is the nominal interest rate and $\pi$ is the inflation rate.
Step2: Identify the nominal interest rate and inflation rate
The APR (Annual Percentage Rate) is the nominal interest rate $i = 3%=0.03$, and the annual inflation rate $\pi = 2% = 0.02$.
Step3: Calculate the real rate of return
$r=0.03 - 0.02=0.01 = 1%$
Answer:
1%