Suppose that Jean Splicer, an investor, buys $300,000 of shares of stock in a diversified bundle of Bio-tech firms and exactly one year later sells those shares for $315,000. Assume that the value of the CPI at the date of Jean's purchase was 180 and rose by the sale date one year later to 185 while the value of the GDP Deflator was 120 at the time of her purchase and rose to 125 by the date she sold her shares.
What was Jean’s nominal rate of return on this investment?
What was the inflation in the prices faced by consumers?
What was Jean’s real rate of return on this investment?
Why do we use the CPI, rather than the GDPD, for computing the real return on investment?