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[Solved] Cash Account - Real ROR - Clarification Please

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(@ilovemybeagles)
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Joined: 2 years ago
Posts: 36
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There is a statement in the PRC2023 User’s Manual that makes me question my understanding of Real Rate of Return, or perhaps how PRC defines it, so I'd like to request clarification please.

From Page 33, for Real ROR… “This can be a negative number, so if inflation is 3% and you expect your cash account to earn no return, just enter a -3% here."

If I expect no real return after inflation, isn’t Real ROR 0% instead of -3%? If a Savings account pays 3% but inflation is 3% isn’t Real ROR 0%, not -3%? Entering -3% would seem to define an adjustment-to-inflation value, not an absolute Real ROR. On Page 46, related to Assets, Real ROR is defined as “This is the average rate of return after inflation is removed.” That comports more with my understanding. But maybe PRC is looking for an adjustment-to-inflation value instead of an absolute Real ROR where the Cash Account is concerned?

After having gotten my grubby paws on PRC2023 - yes, finally, thank you! - I am endeavoring this year to re-enter all my data from scratch rather than importing from last year. I want to force myself to revisit all my prior assumptions and rethink everything from a fresh point of view. If I’m already confused on the Initialization tab, maybe I should just do the import! 😀


   
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(@ilovemybeagles)
Trusted Member Customer
Joined: 2 years ago
Posts: 36
Topic starter  

Oh brother, I just re-read that Real ROR definition for the Cash Account, and it made perfect sense! When you say "you expect your cash account to earn no return", you meant you expect it to earn 0%, Nominal. If inflation is running at 3% then the Real ROR would naturally be -3% (0% Nominal Return - 3% Inflation = -3% Real Return). Somehow earlier I was interpreting it as 0% ROR AFTER Inflation had been applied, meaning the Nominal Return was 3% to start with (rather than 0% as was intended in your example). So, I'm sorry for the useless post and for making a simple thing so convoluted. Such seems to be my lot in life.


   
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