adjust inflation? anything, welcome, valuation, exercises

rosemary2011

brave ones,

when do we really have to adjust inflation (when we compute cost of equity with capm)

in MOCK CFAI (AM) Q 21 : they gave us the inflation but they didn't adjust the RFR...

I can almost swear that in equity valuation exercises I had to adjust it to get the nominal one.


(is this correct: when they don't mention anything we assume is already the nominal RFR?)


any comments welcome. thks!

farrukhsadiq

many thanks chuckrox8!

smartpants

In Q21 they said that the "risk-free interest rate is 4% and expected inflation is 3%". I would just assume that the risk free rate given is nominal already unless they explicitly state that it is the REAL risk free rate of interest, then you would have to calculate nominal.

You're correct though, CAPM always uses nominal rfr.



Edited 1 time(s). Last edit at Tuesday, June 2, 2009 at 02:34PM by Chuckrox8.