3 You are an excellent investor and have averaged a 12 rate

3.  You are an excellent investor and have averaged a 12% rate of return over the last 20 years.  Over the same time period, inflation has averaged 3.2%.  What is the real rate of return you have earned on your investments?

Solution

There is a standard formula to solve this kind of problem, the formula is

Nominal rate of return = Real rate of return + Inflation rate

So, the real rate of return would be 12-3.2=8.8%