- CFA Exams
- CFA Level I Exam
- Study Session 18. Portfolio Management (1)
- Reading 52. Portfolio Risk and Return: Part I
- Subject 3. Historical Return and Risk

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**CFA Practice Question**

The market portfolio of common stocks earned 20.4% last year. Treasury bills earned 5.3% on average last year. The average inflation rate was 2.5%. What was the real return on equities?

A. 12.6%

B. 15.1%

C. 17.9%

**Explanation:**20.4 - 2.5 = 17.9

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**User Contributed Comments**
5

User |
Comment |
---|---|

murli |
Real Return = ex inflation not ex-RFR. |

Lt2201 |
Shouldn't the calculation for this be 1.204/1.025 - 1 = 17.46% |

droko |
@Lt2201: that depends how you calculate inflation rate and nominal returns, etc, |

Lambo83 |
I agree Lt2201, it should be 1.204/1.025 - 1 = 0.1746 |

myron |
@Lambo83 and @Lt2201: It can be approximated that nominal interest rate = real interest rate + inflation premium. Pick the closest answer. |