Question

Reijo has invested €8,000 in an investment fund with an average return of 6% per year. Reijo sells the fund shares after 6 years, and a 30% tax is normally paid on the capital gain. How many percent is the real return on Reijo's investment when the consumer price index has risen from 104.1 to 116.6 at the same time?

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Answer to a math question Reijo has invested €8,000 in an investment fund with an average return of 6% per year. Reijo sells the fund shares after 6 years, and a 30% tax is normally paid on the capital gain. How many percent is the real return on Reijo's investment when the consumer price index has risen from 104.1 to 116.6 at the same time?

Expert avatar
Hester
4.8
116 Answers
To calculate the real return on Reijo's investment, we need to adjust the nominal return with inflation using the Consumer Price Index (CPI).

1. Calculate the nominal return after 6 years:
Future value (FV) of investment = €8,000 * (1 + 0.06)^6
FV = €8,000 * (1.06)^6
FV = €8,000 * 1.418519
FV = €11,348.15

2. Calculate the capital gain:
Capital gain = FV - Initial investment
Capital gain = €11,348.15 - €8,000
Capital gain = €3,348.15

3. Calculate the tax on capital gain:
Tax on capital gain = 30% * Capital gain
Tax = 0.30 * €3,348.15
Tax = €1,004.45

4. Calculate the net capital gain:
Net capital gain = Capital gain - Tax
Net capital gain = €3,348.15 - €1,004.45
Net capital gain = €2,343.70

5. Calculate the real return after adjusting for inflation:
Real return = (Net capital gain / Initial investment) * (CPI at end / CPI at start)
Real return = (€2,343.70 / €8,000) * (116.6 / 104.1)
Real return = 0.2929625 * 1.119663
Real return = 0.3279667

Therefore, the real return on Reijo's investment with inflation adjustment is 32.80%.

\boxed{32.80\%}

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