The nominal rate of return is the return before adjustment for inflation, which is given as 2%. The
real rate of return would be adjusted for inflation (2% - 1.5% = 0.5%), but the question asks for the
nominal rate. The feedback from the document states:
"It is important to consider the effects of inflation on investments because we can isolate the
difference between nominal and real returns. Investors are more concerned with the real rate of
return – the return adjusted for the effects of inflation. A nominal return is a return that has not been
adjusted for the impact of inflation. The approximate real rate of return is calculated as: Real Return
= Nominal Rate - Annual Inflation Rate."
Reference: Chapter 8 – Constructing Investment PortfoliosLearning Domain: Understanding
Investment Products and Portfolios
