(1) Nominal interest rate: it is the interest rate announced by the central bank or other institutions providing funds and loans, and it is the ratio of the monetary amount of interest (reward) to the monetary amount of principal. In other words, interest rates include compensation for inflation (including deflation) risks.

② Real interest rate: refers to the interest rate under the condition that the price level remains unchanged and the purchasing power of money remains unchanged. That is, the real interest rate at which depositors or investors get interest returns after excluding inflation.

2. Reflect the time value of funds

① Nominal interest rate: it cannot fully reflect the time value of funds.

② Real interest rate: it truly reflects the time value of funds.

3. Representative letters

① Nominal interest rate: R stands for nominal interest rate.

② Real interest rate: I stands for real interest rate.

4. Calculation formula

① Nominal interest rate: r = (1+i) (1+p)-1.

② Real interest rate: I = (1+r)/(1+p)-1.

5, the relationship between the two

① When the interest period is one year, the nominal interest rate is equal to the real interest rate; When the interest period is shorter than one year, the real interest rate is greater than the nominal interest rate.

The greater the nominal interest rate, the shorter the term, and the greater the difference between the real interest rate and the nominal interest rate.

References:

Baidu encyclopedia-nominal interest rate

Baidu Encyclopedia-Real Interest Rate