You saved $12,000 in twenties inside your Serta or Casper. It sat there 10 years. Your nominal savings was 12 grand. But your real savings, given that the value of a dollar declined 25% during that period, was really only 9 grand. (And worse, if you count dollar-eating-roach-damage.)
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Finance: What is Nominal Rate?32 Views
finance a la shmoop. what is the nominal rate?
hmm well a nominal rate is the named rate of interest on a bond. here's a bond
Eastern Airlines famously bankrupt a zillion years ago. but what's key here is [bond shown]
the nominal rate on the face of the bond right here. that .you see that 11 and 3/4
percent thing? that's the nominal rate the named rate of interest on the bond.
but when the bond was sold it was actually somewhat better than lukewarm
or almost hot offering and it sold for a hundred five cents on the dollar or a
five percent premium to the nominal rate. so investors did not in fact receive the [woman holds bond]
nominal rate because they paid slightly more than the thousand dollars our value
of the bond. they paid a thousand fifty. so instead they received eleven point
seven five divided by 1.05 or about eleven point two percent in interest.
that was the real return they got. the 11 and three-quarters percent? yeah that's [equation shown]
the nominal. rate the named rate and the performance of the bond well, it was not
phenomenal. [graph shows bankruptcy]
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