Question

In your own words, compare and contrast the real rate of return, the nominal rate of return, and the ex ante nominal rate of return, using either real-life examples or hypothetical examples.

Answer 1

Real rate of return is rate of return which won't be including the total amount of inflation in its calculation so it is only the rate of return after eliminating the effect of inflation in the total rate of return.

Nominal rate of return will be the overall rate of return which is inclusive of both inflation and real rate of return so it is reflecting the rate of return without elimination of the effect of inflation.

Ex ante nominal rate of return will be the rate of return which is based upon the forecast rather than the actual results . These nominal rate of return will be reflecting the overall rate of return which is not the real rate of return and it is just forecasted nominal rate of return which will include the inflation in its overall forecasting.

Hence, real rate of return and nominal rate of return adjust normal rate of return which are earned during the time period but Ex- Ante nominal rate of return is a forecasted rate of return.

For real examples, We will be looking at the overall growth rate of the economy is represented in the terms of nominal interest rates and we need to filter out after deducting of inflation in order to find out the real growth of the economy.

Example of ex ante nominal rate of interest will be forecast made by federal reserve in terms of expected inflation.