finance lec 5 - inflation

Question 1

nominal aka

Answer 1

money / current

Question 2

if using a nominal cf what does what df do you use

Answer 2

nominal cost of capital

Question 3

if use real cf what do you discount y

Answer 3

real cost of capital

Question 4

what does the real of anything do

Answer 4

exlude inflation

Question 5

what does the nominal of anything do

Answer 5

includes inflaion

Question 6

whether you use a nominal or real cf both should

Answer 6

give you the same answer

Question 7

we have 100k in a bank account which gives us 10% intrest so get 110k ,

inflationis about 5%

what is this money made up of

Answer 7

yes we get 10% more but part of IE compensates for the inflation factor

Question 8

if we get a question and if they don’t tell us inflation rate is nominal what do we expect

Answer 8

standard rate to be at nominal

so unless q syas other wise standard inflattion rate is nominal

Question 9

if i deposit 1,000 into savings account paying 8% nominal interest and get 1080 @ end what is the interest recievable and what does this represen

Answer 9

£80

nominal rate of ROI

Question 10

REAL rate of return is lower than

Answer 10

the effect of inflation

Question 11

equation for finding the nominal rate

Answer 11

1+ r nominal = (1+ r real) x (1+inflation rate) -1

then can rearrange

Question 12

equation for finding the nominal cashflow rate

Answer 12

cf nomoinal t = (cf real t) x (1 + inflation rate)

then can rearrrange

Question 13

how do you remember the rates and nominal thing

Answer 13

nominal = real * inflaiton

jsut add a 1 to each thing when looking for teh rate except when doing cf

but when doing cf always keep the 1+inflation

Question 14

both real and nominal rates should give you …

Answer 14

the same answer