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The Fisher equation can be used in the analysis of bonds.The real return on a bond is roughly equivalent to the nominal interest rate minus the expected inflation rate. But if actual inflation exceeds expected inflation during the life of the bond, the bondholder's real return will suffer.
The formula above can be used for more than calculating the doubling time. If one wants to know the tripling time, for example, replace the constant 2 in the numerator with 3. As another example, if one wants to know the number of periods it takes for the initial value to rise by 50%, replace the constant 2 with 1.5.
The real interest rate is the rate of interest an investor, saver or lender receives (or expects to receive) after allowing for inflation. It can be described more formally by the Fisher equation , which states that the real interest rate is approximately the nominal interest rate minus the inflation rate .
For example, if you borrowed $100,000 with a factor rate of 1.5, multiply those two figures together — $100,000 x 1.5. This gives you $150,000, the total amount you’ll need to repay.
The nominal interest rate is the accounting interest rate – the percentage by which the amount of dollars (or other currency) owed by a borrower to a lender grows over time, while the real interest rate is the percentage by which the real purchasing power of the loan grows over time. In other words, the real interest rate is the nominal ...
John Hull and Alan White, "One factor interest rate models and the valuation of interest rate derivative securities," Journal of Financial and Quantitative Analysis, Vol 28, No 2, (June 1993) pp. 235–254. John Hull and Alan White, "Pricing interest-rate derivative securities", The Review of Financial Studies, Vol 3, No. 4 (1990) pp. 573–592.
In economics, Present value interest factor, also known by the acronym PVIF, is used in finance theory to refer to the output of a calculation, used to determine the monthly payment needed to repay a loan. The calculation involves a number of variables, which are set out in the following description of the calculation:
For example, if you take out a five-year loan for $20,000 and the interest rate on the loan is 5 percent, the simple interest formula would be $20,000 x .05 x 5 = $5,000 in interest. Who benefits ...