see if this helps:
Specifically it is based on if they need $15MM in todays dollars or $15MM total in 10 years:
To add further clarification:
James has a 1,000,000 portfolio and needs $2,000,000 in 10 years. What is the nominal rate needed? What is the real rate needed? Inflation is 1%.
The Required RoR is 7.18%, and the CFAI calls it “Nominal”. However, that includes a premium for expected inflation? How? I would expect you would need 8.18% nominal (ror + inflation). If inflation was 1000% and you received a 7.18% return, how would you have $2MM?
Response from s2000:
TIPS (real) + actual inflation = nominal.
The TIPS principal is adjusted by actual inflation, not expected inflation.
As for James, if the $2,000,000 he needs in 10 years is in then-year dollars, then 7.18% is a nominal return: 6.18% real return, 1% inflation. If the $2,000,000 he needs in 10 years is in current-year dollars, then 7.18% is the real return and 8.18% is the nominal return. It all depends on what “$2,000,000” means.