Inflation and the Real Interest Rate

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The real interest rate or cost of capital is the actual (nominal) rate adjusted for inflation. NPV's of projects can be computed by either discounting real (i.e., constant dollar) cash flows at the real cost of capital or by discounting the nominal cash flows at the nominal cost of capital. One gets the same answer either way.
Source: Professor Kerry Back (Washington University in St. Louis)
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Subjects: Finance, Spreadsheets
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