answersLogoWhite

0


Want this question answered?

Be notified when an answer is posted

Add your answer:

Earn +20 pts
Q: What are the definition of nominal interest rate and real interest rate rate and real interest rate?
Write your answer...
Submit
Still have questions?
magnify glass
imp
Related questions

How does the real interest rate relate to the nominal interest rate?

A real interest rate and a nominal interest rate are quite similar. The only real difference between the two interest rates are that a nominal interest rate include the cost of inflation where as the real interest rate does not.


What is nominal interest?

Nominal InterestA nominal interest rate is the interest rate that does not compensate for inflation. This is used in relation to "effective interest rate" or "real interest rate."" Real Interest Rate = Nominal Interest Rate - Inflation Rate " Improvement suggested by Palash Bagchi.


Suppose a borrower and lender agree on the nominal interest rate to be paid on a loan and the inflation turns out to be higher than they expected Is the real interest rate on this loan higher?

the real interest rate equals nominal interest rate minus inflation rate. In the situation the inflation rate increase and the nominal interest rate remains unchanged, therefore the real interest rate must decrease.


What is nominal interest rate minus the expected rate of inflation?

The expected real interest rate.


What is the best nominal interest rate?

Nominal interest rate referes to the rate of interest prior to taking inflation into account. Depending on its application, an inflation and risk premium must be added to the real interest rate in order to obtain the best nominal rate.


Real interest rate vs nominal interest rate?

Real interest rate = nominal interest rate- inflation rate. If a burger in 2007 is for $100 and if the same burger in 2008 is for $110 then Inflation rate is 10% for 2007 If interest rate in 2007 is 13% and in 2008 interest rate is 14% real interest would be only 14%-10% = 4% That is in real value the return on investment is only 4% because purchasing power of 10% is decreased because of inflation


The one year nominal interest rate is 7.97 and the real interest rate is 3.54 what is the expected inflation rate?

The expected inflation rate is 11.51%


What is the rate of Risk-Free interest?

Risk-free interest is the rate of interest which exists when the expected risk of the economic transaction is zero. In most cases, the general interest rates in major banks of a country reflects the nominal interest rate, which is risk free. The real interest rate is simply the nominal interest rate minus the rate of inflation.


How are nominal interest rate and real interest rate related?

The nominal interest rate is the baseline interest rate attached to an investment.The real interest rate is connected to the rate of inflation over the duration of your investment.The basic formula for determining the Real Interest Rate is:Real Interest Rate = Nominal Interest Rate - InflationHere's a basic example: If I buy a one-year, $100 savings bond with a 6% interest rate of return, I should receive $106 at the end of the year. This percentage--6%--is my nominal interest rate.Inflation changes the value of the total you receive at the end of the year. Inflation measures the rate of increase in the cost of goods and services; if you buy a table today for $100 and you buy the same table in a year for $103, that equals a 3% rate of inflation.If this happens the same year you are waiting for your bond to mature, you will still receive $106, but goods and services now cost $3 more than they did a year ago, which effectively reduces the value of your profit to $103. This means your real interest rate is actually 3%.3% Real Interest = 6% Nominal Interest - 3% Inflation


Suppose that inflation is -3 per year and it is expected to continue at that rate in the future If the nominal interest rate is 0 per year then what is the real interest rate?

-3


What would you expect the nominal rate of interest to be if the real is 4 percent and the expected inflation rate is 7 percent?

5


How are interest rates calculated?

Calculating Interest: Principal, Rate and Time are Known--I= p r t http://www.calculator.net/interest-rate-calculator.html The level of interest rates in a free market economy are primarily determined by the rate of inflation, the demand for money, and the actions of the Federal Reserve. Lenders of money will generally demand what is known as a nominal interest rate which is equal to a real interest rate plus a premium to cover the inflation rate. The real, or inflation adjusted interest rate, is the percentage rate of return to a lender as measured by an increase in purchasing power. Yale professor Irving Fisher's economic theory of interest rates laid the conceptual groundwork for establishing that the nominal interest rate equals the real interest rate plus the anticipated rate of inflation. Fisher's mathematical equations in his theory of interest rates are supported by empirical data. A comparison of comparable maturity U.S. Treasury securities, one of which has a fixed rate and the other an inflation adjusted rate, shows that the nominal interest rate always exceeds the real interest rate. A consumer, whether a borrower or a saver, will generally be quoted a nominal interest rate by a bank on a loan or a savings account.