Fisher Formula

The Fisher Formula converts Nominal interest rates into Real rates. Real Rate = (1+r)/(1+I) - 1. Where r is the nominal discount or interest rate, and I is the rate of inflation.

The Fisher formula adjusts nominal rates of return or interest yields for inflation for application in discounted cash flow and net present value calculations.

Worked example:

If the target discount rate is 15.5% per annum and inflation is 5.0% per annum, the real discount rate is (1+0.155)/(1+0.05) - 1 = 10.00% per annum.

Use the real discount rate in your discounted cash flow calculations.

Reference Pages

NPV