The Fisher Effect Corporate Finance CPA Exam BAR CMA Exam Chp 7 p 7
Free
15 minutes
English

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Description

The Fisher Effect is a concept in finance that explains the relationship between real and nominal interest rates. It suggests that investors are primarily concerned with what they can buy with their money, rather than just the growth of their investment. This session uses a practical example, such as investing $100 to buy pizzas today versus one year from now, to demonstrate how inflation affects the true rate of return on an investment. The real and nominal rates of interest are discussed, showing that the real rate of return is lower than the nominal rate due to inflation. Irving Fisher's formula for measuring the relationship between real and nominal interest rates is also explained, allowing investors to calculate their true rate of return. This includes considering compensation for inflation when investing money. A simple example is provided using a 5% growth rate on $100, resulting in $105 by the end of the year, highlighting the importance of understanding the true rate of return in making informed investment decisions. learn more

Professions

Risk Analyst Portfolio Manager Investment Banker Financial Planner Financial Analyst Economist CPA Candidate Corporate Finance Manager CMA Candidate Business Analyst

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