(Inflation and interest rates) You're considering an investment that you expect will produce a return of 8 percent next year, and you expect that your real rate of return on this investment will be 3 percent. What do you expect inflation to be next year?

where R is the real interest rate, r is the nominal interest rate and i is the inflation rate, we can deduce the formula for the inflation rate as follows:

Step 1: multiply both members of the equation by (1+i)

[tex](1+R)(1+i)=1+r[/tex]

Step 2: divide both members of the equation by (1+R)

[tex]1+i=\frac{(1+r)}{(1+R)}[/tex]

Step 3: substract 1 from both members of the equation

[tex]i=\frac{(1+r)}{(1+R)} - 1[/tex]

Step 4: replace the given values in the equation

[tex]i=\frac{1+0.08}{1+0.03} -1=\frac{108}{103}-1 = 1.048544-1=0.048544[/tex]

The inflation rate is expected to be 4.8544% next year.

​(Inflation and interest rates​)​ You're considering an investment that you expect will produce a return of 8 percent next​ year, and you expect that your real rate of return on this investment will be 3 percent. What do you expect inflation to be next​ year?

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(Inflation and interest rates) You're considering an investment that you expect will produce a return of 8 percent next year, and you expect that your real rate of return on this investment will be 3 percent. What do you expect inflation to be next year?