Real rate: Difference between revisions
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The relationship between the Real rate, the Nominal rate and the Inflation rate is: | The relationship between the Real rate, the Nominal rate and the Inflation rate is: | ||
Real rate = ( ( 1 + Nominal rate ) / ( 1 + Inflation rate ) ) - 1 | |||
<b>Example</b> | |||
Nominal rate of return = 6% (0.06). | |||
Inflation rate = 3% (0.03). | |||
The Real rate of return is: | |||
= 1.06 / 1.03 - 1 | |||
= 0.0291 | = 0.0291 | ||
= | = 2.91%. | ||
Revision as of 12:27, 18 March 2015
A rate which has been restated to exclude the effects of inflation.
The relationship between the Real rate, the Nominal rate and the Inflation rate is:
Real rate = ( ( 1 + Nominal rate ) / ( 1 + Inflation rate ) ) - 1
Example
Nominal rate of return = 6% (0.06).
Inflation rate = 3% (0.03).
The Real rate of return is:
= 1.06 / 1.03 - 1
= 0.0291
= 2.91%.
