Given a nominal interest rate of 4.8% and an inflation rate of 1%, calculate the real interest rate:
The relation between a nominal interest rate (n), inflation (i), and the real rate of interest (r) is shown in the following equation: 1 + n = (1 + i)(1 + r)
Divide each side of the equation by (1 + i):
1 + n
1 + i
=
(1 + i)(1 + r)
1 + i
Solving for r, we get:
1 + r =
1 + n
1 + i
1 + r =
1 + 0.048
1 + 0.01
1 + r =
1.048
1.01
1 + r = 1.0376237623762
r = 1.0376237623762 - 1
r = 0.03762
Convert Real Interest Rate to a Percentage - Multiply Real rate by 100%: Real Interest Rate * 100% = 0.03762 * 100%
Real Rate of Interest = 3.76%
What is the Answer?
Real Rate of Interest = 3.76%
How does the Inflation and Real Rate of Interest Calculator work?
Calculates Real rate of Interest, Inflation, and nominal interest rate before inflation. This calculator has 3 inputs.
What 1 formula is used for the Inflation and Real Rate of Interest Calculator?