Sir John Hick?s celebrated definition of income invokes the notion of
?well-offness?, which is seen by some as wealth by another name. The
works of Hicks (and Fisher) on the concepts of income and capital have
proved seminal. In particular, the relationship between money rates of
return, real rates of return, and inflation rates (established by
Fisher in 1930) has become so well established that it now appears as
a matter of routine in undergraduate management accounting texts. On
30 June 2004, the US Federal Reserve bank increased interest rates for
the first time in four years to 1.25% p.a., previously the rate had
been 1% p.a. The US inflation rate for February and March 2003 had
been reported as 3% p.a.

It is required that the real rate of return implied by the US Federal
Reserve bank rate of 1% p.a. and the US inflation rate for February
and March 2003 of 3% p.a. is calculated and to comment on its
significance in relation to the appraisal of capital investment
projects.