For an investment yielding an effective rate of 9% and inflation of 6%, what is the real interest rate earned?

To calculate the real interest rate earned on an investment, the formula used is the Fisher equation, which states:

Real Interest Rate = Nominal Interest Rate - Inflation Rate

In this scenario, the investment has an effective (nominal) interest rate of 9%, while the inflation rate is 6%. By substituting these values into the formula:

Real Interest Rate = 9% - 6% = 3%

This result indicates that after accounting for the erosion of purchasing power due to inflation, the actual increase in value from the investment is 3%. This understanding is crucial, as it emphasizes the difference between nominal returns and real returns, giving a clearer picture of investment performance in terms of actual purchasing power over time.