Which of the following statements is correct?
A)Real cash flows must be discounted at a real discount rate
B)Nominal cash flows must be discounted at a nominal rate
C)(1 + real rate of interest) = (1 + nominal rate of interest)/(1 + inflation rate)
D)All statements are correct

Question

Quizplus · Accepted Answer

All statements are correct: A) Real cash flows should be discounted at a real discount rate to account for inflation. B) Nominal cash flows should be discounted at a nominal rate, which includes inflation. C) The relationship between real and nominal interest rates is given by the Fisher equation: (1 + real rate) = (1 + nominal rate)/(1 + inflation rate).

Which of the Following Statements Is Correct