Calculation of a real interest rate (Fisher equation) formula

Tag: time value of money

Description of the Calculation of a real interest rate (Fisher equation) formula

This formula allows the calculation of a real interest rate for a given period, using an estimated rate of inflation. It is known under the name Fisher equation.

Formula

i_{r} = \frac{1 + i_{n o m}}{1 + r_{i n f}^{e s t}} - 1

Symbols

i_{n o m}

Nominal interest rate

r_{i n f}^{e s t}

Estimated rate of inflation

Additional information related to this formula

Related definition from the glossary of financial terms

Real interest rate