If the nominal interest rate is 4 percent and the expected inflation rate is 1.5 percent the real interest rate is 1.5 %
What do you mean by nominal interest?
- The interest rate before accounting for inflation is referred to as the nominal interest rate.
- The term "nominal" can also apply to the advertised or quoted interest rate on a loan, which excludes any fees or interest compounding.
- When the effective interest rate is known, the nominal interest rate (n) for a given time can be computed as follows:
- n = m [(1 + e)1/m - 1] Where: E is the effective rate. m is the quantity of compounding periods.
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