Interest rates? effective, specified, interest, nothing, whether

simeezee

In CFAI mock, I think It was always clearly mentioned whether the interest rate is nominal or effective in most of the questions. But Schweser doesn't seem to follow that and doesn't normally specify what kind of interest rate that is. If nothing is specified then is it always considered nominal?

joemoran

Lol. I just replied to your other post

Nominal = Real + Inflation.
Real = Nominal - Inflation (It is adjusted for the effects of inflation = pretty much your "true" return).

You posted that wiki page. Heres an insert from there:

nominal interest rate or nominal rate of interest refers to the rate of interest before adjustment for inflation (in contrast with the real interest rate)

Nominal does not adjust for inflation = it includes the affects of inflation.

So if inflation is 9% and your Nominal Return is 10%, technically, you earned 1% after inflation adjusted (Real Rate)

orang3eph

Can you clarify on this query too?

smartpants

Yes I believe so. All your returns are subject to inflation. If you buy a stock, and you yield 2% after 1 year, but inflation was 2 % for that year as well, your true/clean/real return is 0.

Real is the true potential earning.

koba

LOL You have again posted on the wrong thread. I am talking about this query on this thread and can you also reply about my lease query?