nominal rate

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.

ok, great! thank you!

You’re welcome.

But they lead to different answers; its safe to say we should always use the one thats not an approximation?

Yes, you should.

But CFA uses the approximation in the mock…which leads to a different answer. :slight_smile:

when dealing with relatively small rates, the approximation is pretty on point.

which mock exam is this?