SIE Exam Question 818: Answer and Explanation

Question: 818

Which of the following is correct regarding the relationship between an investment's real return and nominal return?

(1) Real return is an investment's rate of return after adjusting for inflation.

(2) Nominal return is an investment's rate of return without adjusting for inflation.

• A. (1) only
• B. (2) only
• C. Both (1) and (2) are correct.
• D. Neither (1) or (2) are correct.

Correct Answer: C

Explanation:

Real return is an investment's rate of return after adjusting for inflation. Nominal return is an investment's rate of return without adjusting for inflation.