05-09-2007, 07:31 PM
<blockquote id="quote"><font size="1" face="Verdana, Tahoma, Arial" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by Arnold</i>
<br />Well Another Aspect to this Real rates of return and nominal ratres of return Well i think all of us have spoken about the inflation factor but there is just one more aspect..
Financial Institutions normally quote rates say 10 % per annum with interest paid half yearly So the nominal rate here would be 10 % but the actuall rate of return is calculated as
Since interest is paid half yearly the interest paid would actually be 5% per half now the real rate is computed by
1+.05 (being the interest paid per half) square it up since interest is paid twice in the year if interest was paid quarterly then we would have multipilied the factor 4 times since interest paid 4 times a year . Now the Answer - 1 and X by 100 thats the real rate of return. Let me do this one
1.05X1.05 = 1.1025
1.1025-1=.1025
.1025X100= 10.25% which is the actual rate of return
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
In finance, the 10% rate that is used in this example is called 'the stated interste rate', and the 10.25% is called 'the effective interest rate'.
Furthermore, if we assume the bank pays interest on daily basis then the effective rate would be 10.52%.
DT
<br />Well Another Aspect to this Real rates of return and nominal ratres of return Well i think all of us have spoken about the inflation factor but there is just one more aspect..
Financial Institutions normally quote rates say 10 % per annum with interest paid half yearly So the nominal rate here would be 10 % but the actuall rate of return is calculated as
Since interest is paid half yearly the interest paid would actually be 5% per half now the real rate is computed by
1+.05 (being the interest paid per half) square it up since interest is paid twice in the year if interest was paid quarterly then we would have multipilied the factor 4 times since interest paid 4 times a year . Now the Answer - 1 and X by 100 thats the real rate of return. Let me do this one
1.05X1.05 = 1.1025
1.1025-1=.1025
.1025X100= 10.25% which is the actual rate of return
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
In finance, the 10% rate that is used in this example is called 'the stated interste rate', and the 10.25% is called 'the effective interest rate'.
Furthermore, if we assume the bank pays interest on daily basis then the effective rate would be 10.52%.
DT
