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 | Real rate = ( (1 + Nominal rate)/(1 + Inflation rate) ) - 1 | ||
For example if the Nominal rate of return = 6% ('''0.06''') and the Inflation rate = 3% ('''0.03'''), | For example | ||
if the Nominal rate of return = 6% ('''0.06''') | |||
and the Inflation rate = 3% ('''0.03'''), | |||
then the Real rate of return = 1.06/1.03 - 1 | |||
= 0.0291 | |||
= '''2.91%'''. | |||
Revision as of 14:50, 26 November 2014
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
For example
if the Nominal rate of return = 6% (0.06)
and the Inflation rate = 3% (0.03),
then the Real rate of return = 1.06/1.03 - 1
= 0.0291
= 2.91%.
