## Answers the Question

How are inflation and interest rates related?

## Calculator for Fisher Equation

## What Is the Fisher Equation?

Named after Irving Fisher, the formula shows the relationship between nominal inflation, real inflation, and interest rates.

## Why Is it Important?

- The formula is often used for cost-benefit analysis. It can be used to ensure that purchased bonds are paying enough to cover the ravages of inflation over their lifetimes.

## Formula(s) to Calculate Fisher Equation

- 1 + NOMINAL INTEREST RATE = ( 1 + REAL INTEREST RATE) * (1 + INFLATION RATE)

## Common Mistakes

- Improperly estimating the inflation rate.
- Improperly estimating the future inflation rate.