Nominal risk free interest rate

CFA Level I Quant
#1

Hi all,

Can anyone explain why the term ‘nominal’ for the risk free interest rate refers to the ‘real’ rate plus inflation (ie includes inflation) whereas for GDP it’s the reverse? (Real GDP includes inflation).

Confused.

Thanks,
Will

#2

Where did you get the idea that real GDP includes inflation?

It doesn’t.

#3

Yep my mistake thanks just re-read the definitions. How do you think about the definition of “real” as a term? Seems like it refers to removing the impact of price inflation

#4

That’s exactly what real means.

1 Like
#5

Cool makes sense thank you…

#6

My pleasure.