At the same time, Real Return Bonds are Government bonds that pay you a rate of return that is adjusted for inflation. whereas nominal bonds don't.
Thus, we MUST NOT CONFUSE nominal return of a bond (does not consider inflation) with required nominal return (considers inflation). Am I correct? Can someone confirm/ clarify?作者: canadiananalyst 时间: 2011-7-13 14:23
No man, you got it all backwards.
Real includes inflation, nominal doesn't.....作者: Windjam 时间: 2011-7-13 14:23
This is a weird area.
It appears to conflict with the exact formula we've known even before level 1.作者: Valores 时间: 2011-7-13 14:23
Yes, Real Return bonds, like Treasury Inflation Protected Securities (TIPS), pay you a return that is adjusted for inflation. They do this by adjusting the principal.
It depends on what you mean by "takes into account inflation" or "includes inflation."
If you're creating an IPS for an investor ex ante and you calculate their required return, you are calculating the REAL required return. To get nominal required return, you multiply by inflation.
nominal return = (1 + real return) * (1 + inflation rate) - 1
If you're calculating the return on an investment ex poste, then you are calculating the NOMINAL return. So to get the real return, you divide by inflation.
real return = ((1 + nominal return) / (1 + inflation rate)) - 1
So basically you got it right, charly_blue
Edited 1 time(s). Last edit at Wednesday, June 1, 2011 at 12:15PM by LobsterBoy.作者: Iginla2011 时间: 2011-7-13 14:23
Thank you for the confirmation/clarification Lobsterboy!
