Home
Back
Fisher Equation:
| From: | To: |
The Fisher equation describes the relationship between nominal interest rates, real interest rates, and inflation. It's a fundamental concept in economics and finance that helps understand the true cost of borrowing and the real return on investments.
The calculator uses the Fisher equation:
Where:
Explanation: The equation shows that the real interest rate is approximately equal to the nominal interest rate minus the inflation rate.
Details: The real interest rate is crucial for understanding the true cost of borrowing and the real return on savings and investments. It helps individuals and businesses make informed financial decisions by accounting for the eroding effects of inflation.
Tips: Enter the nominal interest rate and inflation rate as percentages (e.g., for 5%, enter 5). Both values must be non-negative.
Q1: What's the difference between nominal and real interest rates?
A: Nominal rates don't account for inflation, while real rates do. Real rates show the actual purchasing power of your money.
Q2: Can the real interest rate be negative?
A: Yes, when inflation is higher than the nominal interest rate, the real rate becomes negative.
Q3: Why is the Fisher equation important for investors?
A: It helps investors understand whether their investments are actually growing in purchasing power after accounting for inflation.
Q4: Does this equation work for all time periods?
A: It works best for short-term calculations. For long-term calculations, the exact Fisher equation (using multiplication) may be more accurate.
Q5: How often should I calculate real interest rates?
A: Regularly, especially when making significant financial decisions or when inflation rates are changing rapidly.