A major difference between real and nominal returns is that_______________.

The correct answer is A. Real returns adjust for inflation and nominal returns do not.

Nominal returns are the actual returns on an investment, while real returns are the returns adjusted for inflation. Inflation is the rate at which prices for goods and services are rising. When inflation is high, nominal returns will be higher than real returns, because the value of money is decreasing. When inflation is low, nominal returns will be closer to real returns.

Option B is incorrect because real returns use actual cash flows, while nominal returns can use either actual or expected cash flows.

Option C is incorrect because real returns adjust for inflation, while nominal returns do not.

Option D is incorrect because real returns show the returns after inflation has been taken into account, while nominal returns do not.