You Purchase a Certificate of Deposit and Expect an Inflation

Multiple Choice

You purchase a certificate of deposit and expect an inflation rate of 1.5% over the next year. Your nominal rate of interest is 2.25%. Over the next year, the actual inflation rate turns out to be 1.75%. What is your actual real rate of return?

A) 0.25%
B) 0.75%
C) 0.5%
D) -0.25%