In economics, the Fisher equation is used to determine the
relationship of the nominal interest rate and the real interest rate. This
equation takes into account the effect of inflation. Mathematically this is
expressed as:
Real rate = [tex] \frac{1+Nominal rate}{1+Inflation} [/tex] -1
The values given are:
Nominal rate= 10% =
0.1
Inflation=5%=0.05
Substituting known
values and by calculation:
Real rate=0.0476 =
4.76%
