Real rate

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%.

See also

• Fisher Effect
• Nominal rate
• Real