Real rate

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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