CSI IFC Exam - Topic 4 Question 2 Discussion

Actual exam question for CSI's IFC exam

Question #: 2
Topic #: 4

[All IFC Questions]

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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Dahlia

5 days 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

10 days 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

15 days 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

20 days 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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