If investors require a 10 percent real rate of return, and the inflation rate is 8 percent,
Question:
If investors require a 10 percent real rate of return, and the inflation rate is 8 percent, what must be the approximate nominal rate? The exact nominal rate?
First of all, the nominal rate is approximately equal to the sum of the real rate and the inflation rate: 10 percent + 8 percent = 18 percent. From Equation 8.3, we have:
Therefore, the nominal rate will actually be closer to 19 percent.
Transcribed Image Text:
1 + R= (1 + r) x (1 + h) = 1.10 x 1.08 = 1.1880
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Related Book For
Corporate Finance
ISBN: 9781265533199
13th International Edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe
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