1. What is the Fisher Equation?

The Fisher equation describes the relationship between nominal interest rates, real interest rates, and inflation. It states that the nominal interest rate is approximately equal to the sum of the real interest rate and inflation.

2. How Does the Calculator Work?

The calculator uses the Fisher equation:

Where:

• \( nominal \) — Nominal interest rate (%)
• \( real \) — Real interest rate (%)
• \( inflation \) — Inflation rate (%)

Explanation: The equation shows that the nominal rate compensates investors for both the time value of money (real rate) and inflation.

3. Importance of the Fisher Equation

Details: The Fisher equation is fundamental in economics and finance for understanding the relationship between inflation and interest rates, and for converting between nominal and real values.

4. Using the Calculator

Tips: Enter real interest rate and inflation rate as percentages. Both values must be non-negative.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between nominal and real rates?
A: Nominal rates include inflation, while real rates show the true return after accounting for inflation.

Q2: Why is the Fisher equation important?
A: It helps investors understand their true returns and allows comparison across different inflation environments.

Q3: What's the simplified version of the Fisher equation?
A: Nominal rate ≈ Real rate + Inflation (this approximation works well for low inflation rates).

Q4: How often should I use this calculation?
A: Whenever you're comparing investment returns across periods with different inflation rates.

Q5: Can the Fisher equation predict future inflation?
A: It can be used to derive market expectations of inflation from observed nominal and real rates.