Is the answer for that correct?
Because the forumla that you learn in the front uses
1+R= (1+inflation)X(1+Risk free)X (1+RP)
However, the answer just says
1+R= (1+Risk free)X (1+RP)
Help please?
thanks in advance
It appears that the risk-free rate they gave you is the nominal risk-free rate, not the real risk-free rate.
Sorry? I quite dont understand what you mean.
Can you elaborate please?
It appears that the risk-free rate they gave you already has the inflation premium included in it; it’s a nominal risk-free rate. The _ real _ risk-free rate (the one you included in your formula) doesn’t include the inflation premium.