Cash_Flows_and_the_Time_Value_of_Money

Estimates which ignore inflation are real dollars

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Estimates which ignore inflation are real dollars. Signed contracts signify current dollars that are to be made. Bonds and/or loans are contracts. They signify current dollars to come. Assuming costs won’t change with time are real dollars. 70 Market and Real Interest Rates Market and Real Interest Rates ( i ) ( i' ) (1 + i ) = (1 + ′ i )(1 + f ) To convert the inflation free rate to the market rate -- compound (multiply) inflation in: To convert the market rate to the inflation free rate -- discount (divide) inflation out: (1 + ′ i ) = (1 + i ) (1 + f )
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