### What is the real annual rate of return

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Consider again the following problem: On Jan. 1, 1965, you purchased a small house in Alameda, California for \$20,000. On Jan. 1, 2015, you sold the house for \$900,000.

Assume that a bundle of goods deemed representative of the cost of living as of Jan. 1, 1965 is valued as \$100. Assume that a similar bundle of goods deemed representative of the cost of living as of Jan. 1, 2015 is \$525. Using these bundles of goods to calculate an inflation rate, what is the real annual rate of return (compounded annually) on the investment in the house?

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