An investment offers a total return of 18 percent over the coming year. Janice Yellen thinks the total real return on this investment will be only 14 percent. What does Janice believe the inflation rate will be over the next year?
Answer: Janice believe the inflation rate will be over 4%.
Explanation:
The expected return is 18% but Janice is thinking the return will be 14% because she is discounting the inflation which is 4%. She expects to receive 14% net rate (18%-14%= 4%).
