Sometimes real rates of return are calculated by subtracting the rate of inflation from the nominal rate.
Question:
Sometimes real rates of return are calculated by subtracting the rate of inflation from the nominal rate. This rule of thumb is a good approximation if the inflation rate is low. How big is the error from using this rule of thumb to calculate real rates of return in the followingcases?
Transcribed Image Text:
Nominal Rate (%) Inflation Rate (%) 2 6. 21 70 10 50
Fantastic news! We've Found the answer you've been seeking!
Step by Step Answer:
Answer rating: 53% (13 reviews)
1 r nominal 1 r real 1 inflat...View the full answer
Answered By
JAPHETH KOGEI
Hi there. I'm here to assist you to score the highest marks on your assignments and homework. My areas of specialisation are:
Auditing, Financial Accounting, Macroeconomics, Monetary-economics, Business-administration, Advanced-accounting, Corporate Finance, Professional-accounting-ethics, Corporate governance, Financial-risk-analysis, Financial-budgeting, Corporate-social-responsibility, Statistics, Business management, logic, Critical thinking,
So, I look forward to helping you solve your academic problem.
I enjoy teaching and tutoring university and high school students. During my free time, I also read books on motivation, leadership, comedy, emotional intelligence, critical thinking, nature, human nature, innovation, persuasion, performance, negotiations, goals, power, time management, wealth, debates, sales, and finance. Additionally, I am a panellist on an FM radio program on Sunday mornings where we discuss current affairs.
I travel three times a year either to the USA, Europe and around Africa.
As a university student in the USA, I enjoyed interacting with people from different cultures and ethnic groups. Together with friends, we travelled widely in the USA and in Europe (UK, France, Denmark, Germany, Turkey, etc).
So, I look forward to tutoring you. I believe that it will be exciting to meet them.
3.00+
2+ Reviews
10+ Question Solved
Related Book For
Principles of Corporate Finance
ISBN: 978-0072869460
7th edition
Authors: Richard A. Brealey, Stewart C. Myers
Question Posted:
Students also viewed these Corporate Finance questions
-
Calculating Real Rates of Return If Treasury bills are currently paying 8 percent and the inflation rate is 45 percent, what is the approximate real rate of interest the exact real rate?
-
The rule of thumb for using the normal approximation to the binomial is that both np and n(1 p) are 5 or greater. Why is this restriction necessary?
-
If the government keeps real interest rates low (either by raising inflation or by decreeing low interest rates), then this encourages extra borrowing by businesses, which leads to more investment...
-
A chemical is spilled into a lake of pure water and the concentration of chemicals in this lake is 4 If 20 of the water in the lake is replaced with clean in one month then. What will be the...
-
In the 19th century, the famous physicist Lord Kelvin estimated the age of Earth to be much less than the present estimate. What information that Kelvin did not have might have allowed him to avoid...
-
A Carnot engine has an efficiency of 30% and takes in heat from a high-temperature reservoir at 178 oC. What is the Celsius temperature of the engines low-temperature reservoir?
-
Which statement is false? a. A growing "days sales outstanding" figure is often a sign that receivables are impaired by channel stuffing. b. Backdating stock option exercise dates is not abusive...
-
David and Darlene Jasper have one child, Sam, who is 6 years old. The Jaspers reside at 4639 Honeysuckle Lane, Los Angeles, CA 90248. David's Social Security number is 577-11-3311, Darlene's is...
-
please solve as soon as possible. Candy Craze purchased and installed a machine on January 1, 2020, at a total cost of $298,200. Straight-line depreciation was taken each year for four years, based...
-
Bug-Off Exterminators provides pest control services and sells extermination products manufactured by other companies. The following six-column table contains the company's unadjusted trial balance...
-
Fill in the blanks in the following table: Nominal Interest Rate (%) Real Interest Rate (%) Inflation Rate (%) 10 12 9.
-
In 1880 five aboriginal trackers were each promised the equivalent of 100 Australian dollars for helping to capture the notorious outlaw Ned Kelley. In 1993 the granddaughters of two of the trackers...
-
The 0.1-kg projectile is fi red into the 10-kg block which is initially at rest with no force in the spring. The spring is attached at both ends. Calculate the maximum horizontal displacement X of...
-
Describe three different types of multidivisional structures. Do companies use only one of the types or can they be mixed?
-
What is the difference between departments and divisions? Can the terms be used interchangeably? Why or why not?
-
What factors affect the span of control assigned to a position?
-
What is meant by authority within an organization?
-
A company in the decline stage of the corporate life cycle will always ultimately go out of business. True or false? Defend your answer.
-
The emergence of Uber has influenced many services to follow the Uber business model. There are similar firms that offer ride-sharing services, and there are firms that want to be an Uber-type...
-
Which one of the following anhydrous chloride is not obtained on direct heating of its hydrated chloride? (A) BaCl2 (B) CaClz (C) MgCl2 (D) SrCl2
-
Consider the reduction half-cell reactions listed in Appendix D, and give plausible explanations for the following observations: (a) For some half-cell reactions E depends on pH; for others, it does...
-
Construct a balance sheet for Galactic Enterprises given the following data: Cash balances ........................... $25,000 Inventories ................................ $30,000 Net plant and...
-
Table on the following page gives abbreviated balance sheets and income statements for Estée Lauder Companies. Calculate the following ratios: a. Return on assets. b. Operating profit...
-
Look again at Table. Calculate a common-size balance sheet and income statement for EstéeLauder. TABLE End of Year Start of Year Balance Sheet Assets Current assets: 254 861 856 269...
-
estion 27 (T/F) To respect Ockham's Razor in statistics means to use all of the tools at your disposal to do the most thorough a True False
-
An upper level management team is discussing the value of supporting an early retirement package. However, they do not take the time to define "value" before beginning the discussion. The...
-
Intergroup negotiations differ from negotiations between individuals in that intergroup negotiations Blank______. Multiple choice question. are less likely to discover integrative potential exchange...
Study smarter with the SolutionInn App