The correct expression for the fisher equation
Answers
As I don't know the answer of this question
Answer:
The Fisher equation is a concept of economics stating the relationship between nominal interest rates and real interest rates. The bond given between the two is derived under the effect of inflation. According to the Fisher equation, the nominal interest rate is equal to the sum of the real interest rate and inflation. The concept of the Fisher equation has great significance in the field of finance and economics. This is because it is used in calculating returns on investments (ROI) or estimating the nature of nominal and real interest rates.
Also, the Fisher equation elucidates a state of affairs where investors or lenders demand an additional reward. The demand for an additional reward is justified to compensate for the loss of purchasing power due to growing inflation. Moreover, the applications of the Fisher effect has been protracted considering its growing demand in the market. This method now successfully deals with the analysis of the money supply and international trading of currencies. So, the designer of such a beautiful concept in the field of finance and economics was an excellent American economist, Irving Fisher. Thus, the Fisher equation rapidly gained popularity in the market due to its unmatched work in the theory of interest.
Fisher Equation Formula
The exact formula to justify the relationship between the real interest rate and nominal interest rate can be given as follows:
(1 + nominal interest rate) = (1 + real interest rate) * (1 + inflation rate)
In mathematical terms, the Fisher equation is broadly expressed using the formula given below:
(1 + i) = (1 + r) * (1 + Pi)
where:
i = the nominal interest rate
r = the real interest rate
Pi = the inflation rate