Calculate the expected rate of return


Question: A restaurateur is considering participating in a local weekend event by putting up a tent and offering a limited version of the menu to event goers. The entry fee and other one-time costs of participating are $8,000, which would be borrowed at a 6% nominal interest rate. The restaurateur expects that the event will bring in additional profits of $9,000. The inflation rate is 2%. Calculate the expected rate of return, r, and the real interest rate, i. Should the restauranteur participate in the event? Explain. This type of problem is discussed on pages 205-206 of the text. Do not use AI. Show work.

 

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Finance Basics: Calculate the expected rate of return
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