Real Return

Question 1

What is performance of cash deposits as an investment measured in?

Answer 1

Real rate of return

Question 2

How can real rate of return be described?

Answer 2

Comparing nominal interest with expected future rate of inflation, within investment period.

Question 3

What is real rate of return?

Answer 3

A real return is one that is expected to earn after allowing for inflation.

Question 4

What is another name for the headline interest rate?

Answer 4

Nominal rate

Question 5

What is the Fisher Equation?

Answer 5

Relationship between nominal, real and inflation rates.

Question 6

What is the equation to work out the real rate of return?

Answer 6

Nominal rate of interest - rate of inflation = real rate of return.

R =[(1+Ni)/(1+Infl)]-1

R - Real Rate of Return
Ni - Nominal Rate of Interest
Infl - Inflation expected over holding period

Question 7

Do interest rates go in line with rates of interest on borrowing?

Answer 7

Yes

Question 8

Do deposit takers get income?

Answer 8

Yes - they get income from the difference between rates they pay + rates they charge to borrowers.

Question 9

What does LIBOR stand for?

Answer 9

London Interbank Offered Rate

Question 10

What is the Bid - Offer Spread & Bid/Ask?

Answer 10

Difference in lending/borrowing rates quoted.

Question 11

What does LIBID stand for?

Answer 11

London Interbank Bid Rate

Question 12

What is LIBID?

Answer 12

Rate paid to depositors lending.