NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Investment Landscape
Mr. Iyer invested Rs 50,000 in a bank deposit that paid 8% simple interest per annum. The inflation rate during the year was 6%. Using the approximate method (nominal return minus inflation), what was his real rate of return?
The real rate of return is about 2%, found by subtracting the 6% inflation rate from the 8% nominal return. This shows how much purchasing power actually grew. Adding the rates or quoting only one of them would be incorrect.
- A14%
- B2%Correct
- C6%
- D8%
Explanation
Approximate real return = nominal return - inflation = 8% - 6% = 2%. Adding the two (14%) is a sign error. Using 6% or 8% alone ignores the adjustment for either rate.
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