Sir, in which type of questions will we use the real rate of return and nominal rate of return?
For example: In Q110 (BPP latest kit), they have used the real rate of return.
In the answers, it is given that they took it due to constant cash flows or something.
Can you explain that
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Real and nominal rate
10y ago#1Normally we discount the nominal (actual) cash flows at the nominal (actual) cost of capital (unless obviously the question specifically says to do differently).
This is obviously impossible in question 110 because it is a perpetuity. There is therefore no choice but to discount using the real rate of return (and it is possible because there is only one inflation rate involved).
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