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:
“Just as the French of the nineteenth century invested their surplus capital in a railway-system in the belief that they would make money by it in this life, in the thirteenth they trusted their money to the Queen of Heaven because of their belief in her power to repay it with interest in the life to come.”
—Henry Brooks Adams (1838–1918)
“In the U.S. for instance, the value of a homemaker’s productive work has been imputed mostly when she was maimed or killed and insurance companies and/or the courts had to calculate the amount to pay her family in damages. Even at that, the rates were mostly pink collar and the big number was attributed to the husband’s pain and suffering.”
—Gloria Steinem (20th century)