To calculate the real rate of interest, you can use the Fisher equation, which is expressed as:

$1 + r = \frac{1 + i}{1 + \pi}$

Where:

• $r$ is the real rate of interest,
• $i$ is the nominal interest rate (in this case, 9.5% or 0.095 as a decimal),
• $\pi$ is the inflation rate (in this case, 3.7% or 0.037 as a decimal).

Rearranging the formula to solve for $r$:

$r = \frac{1 + i}{1 + \pi} - 1$

Substitute the values:

$r = \frac{1 + 0.095}{1 + 0.037} - 1$

Now, let's compute this value:

$r = \frac{1.095}{1.037} - 1$

$r = 1.0559 - 1 = 0.0559$

Thus, the real rate of interest is approximately 0.0559 or 5.59% when expressed as a percentage.

Would you like any further details or clarifications? Here are some related questions for deeper understanding:

1. How does inflation affect the real rate of return?
2. What are the implications of a high inflation rate on investments?
3. How would the calculation change if the inflation rate was 5%?
4. What is the relationship between nominal interest rates and real interest rates over time?
5. How do central banks use interest rates to control inflation?

Tip: Always convert percentages to decimal form before performing financial calculations to avoid errors.