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
 
  
 +
Real rate = ( ( 1 + Nominal rate ) / ( 1 + Inflation rate ) ) - 1
  
For example
 
  
if the Nominal rate of return = 6% ('''0.06''')
+
<b>Example</b>
  
and the Inflation rate = 3% ('''0.03'''),
+
Nominal rate of return = 6% (0.06).
  
then the Real rate of return = 1.06/1.03 - 1  
+
Inflation rate = 3% (0.03).
 +
 
 +
 
 +
The Real rate of return is:
 +
 
 +
= 1.06 / 1.03 - 1  
  
 
= 0.0291  
 
= 0.0291  
  
= '''2.91%'''.
+
= 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%.


See also