All videos · NISM Series V-A · Chapter 1
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Your FD pays 7%. What do you really earn?
An FD pays 7% while inflation is 6%. The real return is 1.07 ÷ 1.06 − 1 = 0.94%, so the money barely grows in real terms.
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The full concept: Investment risks
Worked example: An FD pays 7% when inflation is 6%. The real return is 1.07 ÷ 1.06 − 1 = 0.94%. In real terms, the money barely grows.
Exam trap: Spreading money across many stocks removes company-specific risk (a CEO resigns, one factory burns down) but not market risk (a recession hits everything). And bond prices always move opposite to interest rates.
