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Fisher Equation

Links nominal interest rates, real rates, and inflation.

The nominal rate roughly equals the real rate plus expected inflation. It explains why a 5% savings rate during 6% inflation actually loses purchasing power (a −1% real return). Essential for comparing returns across inflationary regimes.

(1 + i) = (1 + r)(1 + π)   ⇒   r ≈ i − π

real_rate = (1 + nominal_rate) / (1 + inflation) - 1