CFA Practice Question

There are 294 practice questions for this study session.

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

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.
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