The appropriate discount rate that analysts use in computing the present value of future cash flows is composed of a pure interest rate and a premium for the risk of the investment,but no increase to reflect expected inflation.What is this rate called?

Question

Quizplus · Accepted Answer

The rate described is the real interest rate, which is composed of the pure interest rate (the rate without adjustments for inflation) plus a risk premium. It is called "real" because it reflects the true increase in purchasing power that an investment will provide, without the effects of inflation. The discount rate that includes expected inflation is called the nominal interest rate.

The Appropriate Discount Rate That Analysts Use in Computing the Present