Solution.
Nominal Interest Rate
What Does Nominal Interest Rate Mean?
Nominal interest rates refer to referes to the rate of interest prior to taking inflation into account. Depending on its application, an inflation and risk premium must be added to the real interest rate in order to obtain the nominal rate.
Nominal interest rates refer to referes to the rate of interest prior to taking inflation into account. Depending on its application, an inflation and risk premium must be added to the real interest rate in order to obtain the nominal rate.
Nominal Interest Rate
Nominal Interest Rate = Real Interest Rate + Inflation Premium + Risk Premium
In practice, the inflation premium is often assumed to be the expected inflation rate and the risk premium is ignored. Unless the economy is experiencing a deflationary period, the nominal rate will be higher than the real rate.
0 comments:
Post a Comment