The scenario most confusing to borrowers is when two lenders are offering
the same nominal rate and monthly payments but different APRs.
Not exact matches
But suppose, as optimists, we assume the
same 6 %
nominal growth
rate in the future.
In that
same interview, he seems to be reaching to square these contradictions, by suggesting that the Fed's current model — targeting 2 % inflation, a Fed funds
rate of ~ 3 %, and an unemployment
rate of ~ 5 % — is not reliable and that they should maybe move to a different targeting regime, like price - level or
nominal GDP targeting.
Breakeven
rates — the difference in yields between
nominal and inflation - linked bonds of the
same maturity — reflect market expectations for inflation.
A stable ratio of credit to GDP would require that they both grow at the
same rate, but international evidence suggests that it is not unusual for credit to grow, on average, a little faster than
nominal GDP.
I teamed it up with DVY assuming a current yield of 3.97 % and a dividend growth
rate of 5.5 %
nominal, the
same as for the S&P 500 index.
The other terms and conditions for fixed interest
rate loans, such as making interest only payments or
nominal $ 25 payments while in school, are the
same as for variable
rate loans.
(The equivalent annual annuity calculation should use the annual effective
rate or the
nominal annual
rate compounded annual, which is the
same.
Therefore, real interest
rates fall as inflation increases, unless
nominal rates increase at the
same rate as inflation.
Assuming a safe withdrawal
rate of 3.3 %, this portfolio would provide $ 33,000 of funds available per year, a very conservative estimate in my mind which should allow for the portfolio to continue to grow and kick off the
same nominal amount indefinitely (and I think Libre and ERN agree with this safe withdrawal estimate).
However, although the
nominal interest
rate remains the
same, it takes longer for the principal to decrease, thereby increasing overall interest paid on the loan.
I used a DVY dividend growth
rate of 5.5 %
nominal,
same as for the S&P 500, and 0 % for PFF.
# 116 aa3 on 02.18.18 at 10:29 am Right now I like the boring CDN utilities These companies basically the best you can hope for is they grow in value at the
same rate the CDN economy grows in
nominal terms.
Also, it grows at the
same rate economy grows, i.e. at 4 - 5 %
nominal, 2 - 3 % real
rate.
Of course, even if
rates climb from 2 % to 10 %, assuming that you keep the bond to maturity and assuming that there is no applicable credit event, it will still pay out the
same $ 1000 at maturity and the
same $ 20 / year (2 % of
nominal value $ 1000, p.a.).
During that
same time, the yield on the 10 Year Treasury note increased less than 1/2 of one percent; having a
nominal effect on mortgage
rates throughout the two year period.