Question

A negative equilibrium nominal rate of interest is impossible or not?

Answer 1

Answer:

Real interest rates can be negative, but nominal interest rates cannot. Real interest rates are negative when the rate of inflation is higher than the nominal interest rate. Nominal interest rates cannot be negative because if banks charged a negative nominal interest rate, they would be paying you to borrow money!

Answer 2

Answer:

Calculate the nominal interest rate per period given the effective interest rate per period and the number of compounding intervals per period. Also calculates the interest rate per compounding interval. Where i = I/100 and r = R/100; nominal interest rate per period, r = m × [ ( 1 + i)1/m - 1 ].

Explanation:

The real rate of interest is the nominal rate minus the expected inflation rate. However, the real rate itself has several components. First is the risk-free rate investors expect. This is the real rate you get on securities with negligible risk, like U.S. Treasury bonds.