2-4 Notes BF - The Fisher Effect o The Fisher Effect...

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2/4/08 Business Finance Notes The rate of return given from the formula responds to the effective rate that corresponds to the period As risk of a bond increases, YTM increases as well. Inflation and Interest Rate o Real rate of interest Change in purchasing power o Nominal rate of interest Quoted rate of interest What you’re told that the interest rate should be
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Unformatted text preview: The Fisher Effect o The Fisher Effect defines the relationship between real rates, nominal rates, and inflation o (1 + R) = (1 + r)(1 +h), where R = nominal rate r = real rate h = expected inflation rate o Approximation R = r + h See sample problems 2/4 #1 Mid-term 1 o See mid-term 1 review...
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This note was uploaded on 04/07/2008 for the course BA 3341 taught by Professor Polkovnichenko during the Spring '08 term at University of Texas at Dallas, Richardson.

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