what’s the difference between these two formulas? I find exercises that are solved with one version and others with the other one. just approximation?
nominal rate = real rate + inflation rate
1 + nominal rate = (1 + real rate) x (1 + inflation rate)
The first is an approximation; the second is not.
But they lead to different answers; its safe to say we should always use the one thats not an approximation?
But CFA uses the approximation in the mock…which leads to a different answer.
when dealing with relatively small rates, the approximation is pretty on point.
which mock exam is this?