So your first and second point make sense to me, they together make the nominal interest rate. What I don't understand is your point about growth. The price of a stock should be determined by the adjusted future returns of the company right? The growth you speak of should be accounted for already in our models of the future returns. So if the price going up that means the models are underestimating future returns right?
No, that's not quite it.
The price of the stock is determined by the anticipated inflation-adjusted future returns (including allowance for risk). But increasing price doesn't mean the models are underestimating future returns, because of opportunity cost. (Which, again, is basically the flipside of growth.)
If the "risk-free interest rate" is 2% in real terms and inflation is 2%, then that means you can (in principle) buy an asset for $1 and be confident that in a year it will be priced at $1.04, which will have the same purchasing power as $1.02 ...
The most recent post in December's Stupid Questions article is from the 11th.
I suppose as the article's been pushed further down the list of new articles, it's had less exposure, so here's another one for the rest of December.
Plus I have a few questions, so I'll get it kicked off.
It was said in the last one, and it's good advice, I think:
This thread is for asking any questions that might seem obvious, tangential, silly or what-have-you. Don't be shy, everyone has holes in their knowledge, though the fewer and the smaller we can make them, the better.
Please be respectful of other people's admitting ignorance and don't mock them for it, as they're doing a noble thing.