Real Interest Rate Calculation Examples Help

Real Interest Rate Calculation Examples, Illustrations, Concept, Sample Help Online


Looking for Real Interest Rate Calculation Examples, Concept and Calculations to do your assignment, homework or project then you are at the right place.

Meaning of Real Interest Rate Calculation Examples

When money is borrowed then during the time of payment, a portion of principal and interest is required to paid to the investor. The interest rate which considers the effects of inflation is termed as Real Interest Rate. The real interest rate reflects the real cost of funds to the borrower. Real Interest Rate can be arrived by subtracting the inflation rate from the nominal interest rate. The inflation rate may be actual or anticipated. When inflation is positive the real interest rate is lower. It can be calculated using the following formula:
Real Interest Rate = Nominal Interest Rate – Inflation (Expected or Actual)

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Real Interest Rate Calculation Examples Explanation

Let take an example and understand the concept of Real Interest Rate Calculation Examples.
Example: suppose a loan has a 12% interest rate and the inflation rate is 6%, then the real return on that loan is 6%. In calculating the real interest rate, we used the actual inflation rate. That is
Real Interest Rate = Nominal Interest Rate – Inflation (Expected or Actual)
12% – 8% = 4%
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