Can any one tell me why we subtract 1 while calculating percentage change.
e.g HPR formula ending value/beg. value -1
or when we convert percentages to decimals we add 1 to it and letter subtract 1 from it.
why cant we just the decimal percentage e. g (1+0.09)^5 -1 and rather why not (0.09)^5
confused about about a para in shweser
where it mention real risk free rate has no expectation of inflation in it i.e doesnt consider inflation, now they mention US TBills are risk free rates but not real rates of return. Now what does it mean TBills are nominal risk free rates because they contain an inflation premium
This is bit confusing if tbills are risk free they should not contain inflation? so why we are calling them risk free and also nominal risk free
i know both my questions are elementary really appreciate if someone would answer
= (ending value – beginning value) / beginning value
= (ending value / beginning value) – (beginning value / beginning value)
= (ending value / beginning value) – 1
Your example isn’t merely converting percentages to decimals; when you merely convert percentages to decimals, you’re correct: you don’t do any of that + 1 – 1 stuff.
Your example shows compounding of interest rates (or growth rates). The values compounded (i.e., multiplied together) are known as price relatives : how the new price (or value) compares to the old price (or value). In that case, the new value is the old value (represented by 1 (= 100% of the old value)) plus the change in value (represented by the interest rate (or growth rate)). The result of compounding is the overall price relative (= 100% plus the overall interest rate (or growth rate)); to get from the overall price relative to the overall interest rate, we have to subtract 100% (= 1).
The return on T-bills is the real-risk-free rate plus a premium for expected inflation. (Well, not exactly; they’re compounded (see above), not merely added.) That combination is known as the nominal risk-free rate.