Economics Time Value Of Money Questions
The nominal interest rate refers to the stated or advertised interest rate on a financial instrument, such as a loan or a bond. It does not take into account the effects of inflation or any other factors that may affect the purchasing power of money over time.
On the other hand, the real interest rate takes into consideration the effects of inflation. It is the nominal interest rate adjusted for inflation, reflecting the actual increase in purchasing power of money over time. The real interest rate provides a more accurate measure of the true cost of borrowing or the return on investment.