Answer: Fay's real rate of return on the project is 3.77%.
We have
Nominal Rate of return 4.6%
Inflation Rate 0.8%n th
The real rate of return is calculated as follows:
[tex]Real Rate of Return = (\frac{1+Nominal rate of return}{1+inflation rate}) - 1[/tex]
Substituting the values we get,
[tex]Real Rate of Return = (\frac{1+0.046}{1+0.008}) - 1[/tex]
[tex]Real Rate of Return = (\frac{1.046}{1.008}) - 1[/tex]
[tex]Real Rate of Return = 1.037698413 - 1[/tex]
Real Rate of Return = 0.037698413
