(1 + Inf. Rate) (1 + Money D Rate) - 1
(1 + Money D Rate) + (1 + Inf. Rate) - 1
(1 + Money D Rate) 4 - (1 + Inf. Rate) - 1
(1 + Money D Rate) - (1 + Inf. Rate) - 1
Answer is Right!
Answer is Wrong!
The correct answer is: A. (1 + Inf. Rate) (1 + Money D Rate) – 1
The real discount rate is the rate of return that is required to compensate for the time value of money and inflation. It is calculated by multiplying the nominal discount rate by the inflation rate.
The nominal discount rate is the rate of interest that is paid on a loan or investment. It is expressed as a percentage of the principal amount.
The inflation rate is the rate at which prices for goods and services are rising. It is expressed as a percentage.
The real discount rate is used to calculate the present value of future cash flows. It is also used to calculate the future value of current cash flows.
Here is a brief explanation of each option:
- Option A: This is the correct answer. The real discount rate is calculated by multiplying the nominal discount rate by the inflation rate.
- Option B: This is not the correct answer. The real discount rate is not equal to the sum of the nominal discount rate and the inflation rate.
- Option C: This is not the correct answer. The real discount rate is not equal to the fourth power of the nominal discount rate minus the inflation rate minus 1.
- Option D: This is not the correct answer. The real discount rate is not equal to the nominal discount rate minus the inflation rate minus 1.