Question

Josephine earned a 15% return on her investments last year. If the inflation rate that year was 4%, what is her real rate of return?

Answer 1

hmmm what's an "inflation rate"?

Answer 2

http://www.mathsisfun.com/definitions/inflation.html

Answer 3

The percentage increase in the price of goods and services, usually annually.

Answer 4

so if Josephine earned 15%
and the inflation rate that same year was 4%

that means..... say at the beginning of the year the price of 1 tomato was 0.50c
at the end of the year is $1.00

so the tomatoes are more expensive in december than in january

if Josephine get her 15% earnings in january, she can say buy 100 tomatoes
but
if she gets her 15% earnings in december, which is the case,
she can only buy 50 tomatoes with the same amount


so inflation rate is really reducing "buying power"
thus her real earnings are 15% - 4%

Answer 5

inflation is the price changes occurring in products and services
noone sees it per se, but everyone pays for it

so inflation is really a paycut.... with the same amount of paper, you buy less
so I could give you a paycut by paying you $100 less weekly
or
I can simply make everything expensive that you'd need $100 more to make ends meet

same thing, different approach

Answer 6

I have a choice 15%, 4%, 11%, and 19

Answer 7

well... check above :)

Answer 8

15%