Asked by Alexander Schneider on Apr 24, 2024
Verified
Distinguish between the nominal rate of interest and real rate of interest.
Nominal Rate of Interest
The nominal interest rate on a loan or investment, before adjusting for inflation.
Real Rate of Interest
The real rate of interest is the rate of interest an investor expects to receive after allowing for inflation, reflecting the true earning potential of an investment.
- Differentiate between nominal and real interest rates and the concept of compound interest.
Verified Answer
PH
Peter Hannes7 days ago
Final Answer :
The nominal interest rate is the interest rate expressed in dollars of current value and not adjusted for inflation. The real interest rate is the interest rate expressed in purchasing power-dollars of inflation-adjusted value- and is equal to the nominal interest rate less the expected rate of inflation.
Learning Objectives
- Differentiate between nominal and real interest rates and the concept of compound interest.