Nominal Rate Calculation showing steps

More about this Nominal Rate calculator so you can better understand the results provided by this solver.

How do you calculate nominal rate?

The Nominal Rate is the "face-value" rate that does not includes the effect of inflation. When you are given the real rate of return and the inflation rate, you can use the following formula to compute the nominal rate of return:

\[ R = \displaystyle (1+r) \times (1+h) - 1 \]

This nominal interest rate calculator with inflation shows us the way that inflation and real growth determine the nominal growth rate.

You can instead use a solver to compute the real rate, when you know the nominal real rate .

Example the calculation of the nominal rate

Question: Find the nominal rate if you know that the real rate is 4% and the inflation rate is 2.5%.

Solution:

This is the information we have been provided with:

Real Rate \(r\) =	\(0.04\)
Inflation Rate \(h\) =	\(0.025\)

Therefore, the nominal rate \(r\) is computed using the following formula:

\[ \begin{array}{ccl} R & = & \displaystyle (1+r) \times (1+h) -1 \\\\ \\\\ & = & \displaystyle (1+0.04) \times (1+0.025) -1 \\\\ \\\\ & = & 0.066 \end{array} \]

Therefore, given a real rate of \(r = 0.04 \) and an inflation rate of \(h = 0.025\), we get that the nominal rate is \(R = 0.066 = 6.6\%\).