Inflation and the Real Interest Rate


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.
Subjects: Finance, Spreadsheets
Source: Professor Kerry Back (Washington University in St. Louis) (visit original source)  
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