Why is the Fisher effect a useful expression in NPV calculations?

Question

Quizplus · Accepted Answer

The Fisher effect is useful in NPV calculations because it allows for the conversion of nominal interest rates to real interest rates (A) and vice versa (B). This is important because NPV calculations require the use of real interest rates to accurately reflect the time value of money. The Fisher effect formula takes into account inflation and helps adjust for the effect of inflation on interest rates. Therefore, both option A and B are correct.

Why Is the Fisher Effect a Useful Expression in NPV