Please explain the below answer in simple terms: Q: Explain how are nominal and real returns...

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Please explain the below answer in simple terms:

Q: Explain how are nominal and real returns of equity investmentrelated with inflation
A: Nominal returns of equities are positivelyrelated to inflation (0.31) where entirely all of the correlationis between capital gains and inflation, while dividends andinflation are uncorrelated. The real returns of equities areuncorrelated with inflation. This implies that equities are a hedgeto inflation that is they are unaffected by inflation.

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Answer Simple Explanation Let us first understand what is nominal return on equitiesNominal Return on Equities refer to return on equities which does not take into account inflation On the other hand Real Return on Equities refer to return on equities after adjusting for inflation The Return on Equities comprises of two components Capital Appreciation or Capital GainsRise in the value of a See Answer

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