Nominal Returns

[Atomic_Sheep]

Nominal returns are:

1 + r = (1 + rrF) x (1 + pi) x (1 + RP)

I thought nominal returns = rf + pi + RP?

[MexicanSherlock]

Correct first formula… not so sure about (1+RP)

[S2000magician]

The first formula is accurate; the second is an approximation.

[Atomic_Sheep]

@christopheausina

Correct first formula… not so sure about (1+RP)

don’t forget if you substitute (1+rreal)=(1+rrF)×(1+RP)

into (1+r)=(1+rrF)×(1+π)×(1+RP)

then you get 1 + nominal = (1+rreal) x (1+pi)

I’ll admit, I don’t quite understand these formulas intuitively, is there some way of memorising them (but preferably I would like to understand them intuitively if that’s even possible?)

(1+r)=(1+rrF)×(1+π)×(1+RP)

(1+rreal)=(1+rrF)×(1+RP) or

(1+rreal)=(1+r)÷(1+π)

[S2000magician]

@Atomic\_Sheep

@christopheausina

Correct first formula… not so sure about (1+RP)

don’t forget if you substitute (1+r_ _real )=(1+r _rF _)×(1+RP)

into (1+r)=(1+r_ _rF _)×(1+π)×(1+RP)

then you get 1 + nominal = (1+r_ _real _) x (1+pi)

Also don’t forget that . . . we have subscripts.

[Atomic_Sheep]

Ah yep, I see them now.