Final answer:
The present value of cash flows remains consistent when expressed in real terms and discounted at the real rate as it would be when expressed in nominal terms and discounted at the nominal rate.
Step-by-step explanation:
If a given set of cash flows is expressed in nominal terms and discounted at the nominal rate, the resulting present value will be the same as if the cash flows were expressed in real terms and discounted at the real rate. This concept is important in the valuation of investments such as bonds, where the present value of the bond is the discounted sum of all future expected payments. Real-world calculations take into account various factors such as market interest rate changes and the risk of borrower default, which can affect both the nominal and real rates. When making investment decisions, such as purchasing a bond, it is crucial to consider the opportunity cost and the present value of future payments given the current interest rate environment.