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Richie C.

asked • 26d

What is the difference between multiplying and dividing percentages with 1 added to the percentages and not

rlocal currency =

(1 + rforeign currency) x (1 + Expected inflationlocal currency ⁄ 1 + Expected inflationforeign currency) - 1


vs.


Country risk premium = Country default spread x (σequity ⁄ σcountry bond)


I'm probably missing some very fundamental understanding, but I want to know why an equation adds 1+ percentage, vs just using the percentage. Is there some intuition why some equations do this? Thank you!

1 Expert Answer

By:

Richie C.

Thank you! This is exactly the answer I was looking for :)
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25d

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