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On January 1, 2011, Albert invested $2,000 at 5 percent interest per year for three years. The CPI on January 1, 2011, stood at 100. On January 1, 2012, the CPI (times 100) was 108; on January 1, 2013, it was 115; and on January 1, 2014, the day Albert's investment matured, the CPI was 125. Find the real rate of interest earned by Albert in each of the three years and his total real return over the three-year period. Assume that interest earnings are reinvested each year and themselves earn interest.

Hint: Calculate inflation and real interest for each year and then calculate it for the three years as a whole.

Year Real rate of interest
2012 %
2013 %
2014 %

Total real rate of return: %.

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M91221957

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