Natalie bought iFruit stock and its value increased by 10% after one year. During this time, the total stock market rose 8%, the average prime rate was 6.5%, and the annual inflation rate was 4.5%. What was the real rate of return on Natalie's investment?
a 3.5%
b 4.5%
c 5.5%
d 8%

Question

Natalie bought iFruit stock and its value increased by 10% after one year. During this time, the total stock market rose 8%, the average prime rate was 6.5%, and the annual inflation rate was 4.5%. What was the real rate of return on Natalie's investment?
a 3.5%
b 4.5%
c 5.5%
d 8%

anonymous · Answer

Her return of investment is C. 5.5%. The reason for this is because the 8% and the 6.5% does not have to do with return in the investment. Rather those are numbers that are "beef" or extra information that does not apply to this. The annual inflation gives you an idea of how much in general money gained in worth or lost in worth over the year. So you subtract how much the inflation rate percent is, with the increased value of your current stock, and you are able to find the total return in your investment.