An investment offers a 14% total return over the coming year. You are skeptical on what this means as you know inflation accounts for some of that. You believe the total real return on this investment will be only 9%.
a) What are you assuming the approximate inflation rate will be over the next year?
b) If you ran an exact calculation instead, what would the inflation rate be over the next year?
c) Would it be okay to use the approximate inflation rate in this instance, given the nominal and real rates? Why or why not?