<P> These approximations, valid only for small changes, can be replaced by equalities, valid for any size changes, if logarithmic units are used, notably centinepers, which are infinitesimally equal to percentages (approximately equal for small values); other logarithmic units differ by scale factors . </P> <P> The market rate of return on the 4.25% UK government bond maturing on 8 March 2050 is 3.81% per year . Let's assume that this can be broken down into a real rate of exactly 2% and an inflation premium of 1.775% (no premium for risk, as government bond is considered to be "risk - free"): </P> <Dl> <Dd> 1.02 × 1.01775 = (1 + 0.02) × (1 + 0.01775) = 1.0381 . </Dd> </Dl> <Dd> 1.02 × 1.01775 = (1 + 0.02) × (1 + 0.01775) = 1.0381 . </Dd>

According to the fisher equation the nominal interest rate equals the expected inflation rate