Editing Interest (section)

===Composition of interest rates===
In economics, interest is considered the price of credit, therefore, it is also subject to distortions due to [[inflation]]. The nominal interest rate, which refers to the price before adjustment to inflation, is the one visible to the consumer (that is, the interest tagged in a loan contract, credit card statement, etc.). Nominal interest is composed of the [[real interest rate]] plus inflation, among other factors. An approximate formula for the nominal interest is:

:<math> i= r + \pi </math>

Where
:''i'' is the nominal interest rate
:''r'' is the real interest rate
:and {{pi}} is inflation.

{{see also|Fisher equation}}

However, not all borrowers and lenders have access to the same interest rate, even if they are subject to the same inflation. Furthermore, expectations of future inflation vary, so a forward-looking interest rate cannot depend on a single real interest rate plus a single expected rate of inflation.

Interest rates also depend on [[credit risk|credit quality or risk of default]]. [[government debt|Governments]] are normally highly reliable [[debtor]]s, and the interest rate on government securities is normally lower than the interest rate available to other borrowers.

The equation:

: <math> i = r + \pi + c </math>

relates expectations of inflation and credit risk to nominal and expected real interest rates, over the life of a loan, where
:''i'' is the nominal interest applied
:''r'' is the real interest expected
:{{pi}} is the inflation expected and
:''c'' is [[yield spread]] according to the perceived credit risk.