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I am looking at the egs in the BPP text and I am a little confused. Chapter 9 pg160 and 161. On 161 we inflated and use the real rate which i understand but why do we inflate on pg 161 and use the nominal rate of return?
Hello, I find this area a little confusing myself…but If you are talking about Example 1.4 then I believe it is because there is more than 1 rate of inflation therefore you wouldn’t be able to calculate a real rate of return. If you were calculating a real rate then you’d have to use the following formula 1+Nominal rate/1+rate of inflation. If there were a single rate ie 5% that applied to everything then I believe we could use the real rate.
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