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Unformatted text preview: compensate for inflation. You will need to get at least a 15 percent nominal rate because inflation will eat up 10 percent of the value of your money over the year. After inflation, the value of your money would have only increased 5 percent over the year, the real rate of interest in this example. 10% inflation + 5% real interest rate = 15% interest rate required with no risk. $1.00 today * (1+ interest rate required) = 13 $1.00 today * 1.15 = $1.15 one year from today, $.10 of this lost to inflation....
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This note was uploaded on 12/29/2011 for the course ECO 210 taught by Professor Malls during the Fall '10 term at SUNY Stony Brook.
 Fall '10
 malls
 Inflation

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