Real vs Nominal Cost of Capital in 2 Minutes 📊

In this video I demystify the concepts of real and nominal interest rate / cost of capital / discount rate. The real rate reflects the required return of the investor, and the nominal rate is then adjusted to compensate for inflation.

If you are solving an investment appraisal/NPV/Net present type of problem, you use the real rate / cost of capital when inflation is ignored, or they give a single, general inflation rate in the scenario. You use the nominal rate / cost of capital when there are multiple rates of inflation listed in the scenario. In this case, you use the nominal discount rate and adjust the cash flows for inflation as well.

Steve Willis ACCA
www.stevewillistraining.com
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