Interest Rates
- Real interest rates are measured as the difference between nominal interest rates and the rate of inflation.
- The expected real interest rate is the nominal interest rate minus the inflation rate expected over the term of the loan.
- The realized (ex post) real interest rate has the actual inflation rate subtracted from the nominal interest rate.
The relationship above is approximate only. The actual relationship is: (1+IRN)=(1+IRR)+(1+I), where:
- IRN is the nominal interest rate,
- IRR is the real interest rate, and
- I is the inflation rate
Read more about this topic: Real Versus Nominal Value (economics)
Famous quotes containing the words interest and/or rates:
“The interest in life does not lie in what people do, nor even in their relations to each other, but largely in the power to communicate with a third party, antagonistic, enigmatic, yet perhaps persuadable, which one may call life in general.”
—Virginia Woolf (1882–1941)
“Families suffered badly under industrialization, but they survived, and the lives of men, women, and children improved. Children, once marginal and exploited figures, have moved to a position of greater protection and respect,... The historic decline in the overall death rates for children is an astonishing social fact, notwithstanding the disgraceful infant mortality figures for the poor and minorities. Like the decline in death from childbirth for women, this is a stunning achievement.”
—Joseph Featherstone (20th century)