• The real interest rate is equal to the observed market interest rate adjusted for inflation.
  • It reflects the purchasing power of the value of the interest paid on an investment or loan.
  • It is also a measure of the borrower’s and lender’s time preference.
  • Estimated real interest rates are based on estimates of future inflation over time until the loan or investment is repaid.
  • Investors can earn a negative rate of return if the inflation rate is higher than the nominal rate of return on their investment.