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    kelly505's Avatar
    kelly505 Posts: 1, Reputation: 1
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    Jul 24, 2007, 01:54 PM
    Nominal Interest Rate
    What is a nominal interst rate? What are the various elements?
    Proteus's Avatar
    Proteus Posts: 3, Reputation: 1
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    Jul 25, 2007, 01:27 PM
    The Nominal Interest Rate refers to the rate of interest paid or received, on a loan or deposit, before adjustment for inflation.

    This is in contrast with the real interest rate; or, for interest rates "as stated" without adjustment for the full effect of compounding that are also referred to as the nominal annual rate.

    So, Real Interest Rate = Nominal Interest Rate - expected inflation

    For example, if the rate of interest quoted on a deposit of money is 6%, and the rate of inflation expected during that term is 3%, then the nominal interest rate is said to be 6%, while the real interest rate is calculated as 3%.

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