CSI IFC Exam - Topic 4 Question 2 Discussion

Actual exam question for CSI's IFC exam

Question #: 2
Topic #: 4

For the last year, an investor earned a return before adjustment for inflation of 2% on a money market fund, while inflation averaged 1.5%. What was his nominal rate of return?

A0.50%

B1.50%

C3.50%

D2.00%

Show Suggested Answer

Suggested Answer: D

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.'

by Enola at Jan 28, 2026, 05:26 AM

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Dominga

No, nominal is before inflation, so it's definitely 2.00%.

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Pa

5 days ago

But isn't it 0.50% after inflation?

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Marsha

10 days ago

I agree, it seems straightforward.

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Alisha

15 days ago

I think the nominal rate is 2.00%.

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Evan

2 months ago

I thought it would be higher than that!

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Ruthann

2 months ago

So, does inflation really only affect the real return?

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Tish

2 months ago

Wait, is it really that simple?

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Alaine

3 months ago

Totally agree, it's just the stated return.

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Theodora

3 months ago

The nominal rate of return is 2%.

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Tiffiny

3 months ago

This is a piece of cake. The nominal rate of return is just the return before inflation, so the answer is D) 2.00%. No need to overthink it.

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Willetta

3 months ago

C) 3.50% is the way to go. Gotta factor in that sweet, sweet 2% return plus the 1.5% inflation. Easy money!

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Yvonne

3 months ago

Haha, I bet the person who wrote this question was trying to trick us. But I'm not falling for it - the answer is obviously D) 2.00%.

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Darci

3 months ago

D) 2.00% is the correct answer. The question states the return before inflation was 2%, so that's the nominal rate.

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Hubert

4 months ago

The answer is clearly B) 1.50%. Inflation was 1.5%, so the nominal rate of return must be that.

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Micaela

4 months ago

I feel confused about this one. I thought nominal rates were just the stated rates, but I keep second-guessing myself. Could it really be 1.50%?

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Christiane

4 months ago

I practiced a similar question where we had to adjust for inflation. If the return is 2% and inflation is 1.5%, I guess the nominal rate is still 2.00%.

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Dahlia

5 months ago

I'm not entirely sure, but I remember something about nominal rates being different from real rates. Is it possible that the answer is 0.50%?

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Oneida

5 months ago

I think the nominal rate of return is just the return before inflation, so it should be 2.00%.

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Ora

5 months ago

I'm pretty confident the answer is D) 2.00%. The question states the investor earned a 2% return before adjusting for inflation, so that's the nominal rate of return.

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Elli

5 months ago

I'm a bit confused. Isn't the nominal rate of return the sum of the real rate of return and the inflation rate? If so, then the answer should be B) 1.50%.

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