Assume that last year you purchased a real asset, say a piece of land, for $100,000. You paid $20,000 down and borrowed the balance. The rate of inflation between last year and this year was 6%. If the value of this asset increased at exactly the rate of inflation, and you sold it this year, the nominal rate of return on your $20,000 investment was: ______% (ignore the time value of money).
1. What was the real rate of return on your $20,000 investment? ______%
2. What would have been your nominal rate of return had you not been leveraged?
3. What would have been your real rate of return had you not been leveraged? ______%