We have two independent and mutually exclusive projects, A and B. Project A requires an initial investment of $1500, and will yield $800 of cash inflows for the next three years. Project B requires an initial investment of $5000, and will yield $1,500 of cash inflows for the next five years. The required return on each project is 10%.

The cash flows and required return given are all in nominal terms. Given that the inflation rate is 3%, answer the following questions:

d.What is the real rate of return based on the exact Fisher equation?