If you are promised a nominal return of 12% on a 1-year investment, and you expect the rate of inflation to be 3%, what real rate do you expect to earn?

A) 5.48%
B) 8.74%
C) 9%
D) 12%

Nominal Return

The amount of money gained or lost on an investment, without adjusting for inflation, as opposed to the real return which is adjusted for inflation.

Real Rate

The interest rate adjusted for inflation, representing the true cost of borrowing or the true return on investment.