# Difference between revisions of "Real rate"

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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%.