Questions Help

CFA Level I Equities
#1

Hi I am working on a question and I need some help understanding how to get to the answer but I think I am doing something wrong.

The question is in the attachment below.

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It is number 5.

Would I not be taking $2,750 multiply that by 12 to get 33,000 subtract that from the 18,000 initial investment and then divide by $18,000 for the Nominal Rate of Return?

Then take that any rate and add one and divided by the inflation rate over 12 years which is 6.2% plus one. Then subtract 1 and get the real rate of return?

I said the answer is yes I should invest but the answer key says I am wrong and I don’t know why. Any help is much appreciated.

#2

You ignored the time value of money.

On a compounded basis, the nominal return is 10.8294%, and using Fisher’s equation, the real return is 4.36%, which is less than the required 5.5%. So, that’s a no.