Unit 4.2 : Nominal vs Real Interest Rates
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8 Terms
1
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real interest rates
percentage increase in PURCHASING POWER that a borrower pays (adjusted for inflation)
2
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nominal interest rate - expected inflation
real interest rate =
3
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nominal interest rate
percentage increases in MONEY that borrower pays (NOT adjusted for inflation)
4
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real interest rate + expected inflation
nominal interest rate =
5
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interest rate; number of years (N)
You can determine the future value of any amount of money ($X) if you know the ____ and the ____
6
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fv = $X[(1 + ir)^N]
equation to calculate the future value of $X in N years
7
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present value
current worth of some future amount of money
8
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pv = $X/[(1 + ir)^N]
equation to calculate the present value of $X in N years