Corporate Finance

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Answer 1

Answer #1

Real rate of return is after the inflation adjusted return to calculate the actual eturn after the adjustment of inflation.

Formula for real rate of return = { (1+Nominal rate) / (1+Inflation rate) } - 1

whereas Nominal rate is the non adjusted rate. The return that will be genrated without the adjustment of inflation.

Formula for Nominal rate of return = {(1+real rate)*(1+inflation rate)}-1

Hence in the given case,

Nominal rate = {(1+0.024)*(1+0.037)}-1

Nominal rate = (1.024 * 1.037) - 1

Nominal rate = 0.06188 i.e. 6.19%

There is no specific formula in excel. You have to put the above equations in excel to calculate the same

丘 =((1.024*1.037)-1) Real Rate = Inflation rate- Nominal rate = 2.40% 3.70% 6.19%

Answer 2

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