# Real

1.

A term which has been restated to exclude the effects of inflation.

When inflation is positive, real terms measures are correspondingly smaller, the effects of inflationary growth having been stripped out.

**Example 1**

If £100 is invested for a year

at a nominal rate of 10% and

inflation is 2%,

we can say that the nominal rate is 10%,

but the real rate is only:

= (1.10 / 1.02) - 1

= 7.84%

all rates being expressed as effective annual rates.

This is because goods which cost £100 today will cost £102 in a year's time.

Therefore only a 7.84% return has been made if we take into account the new prices of goods.

Notice how the inflation rate and the real rate compound together to produce the nominal rate.

**Example 2**

(1.02 x 1.0784) - 1

= 10%.

When either the inflation rate or the real rate is low, the result is approximately the same as simply adding or subtracting rates.

**Example 3**

When the nominal rate is 6%

and the inflation rate is 4%,

the real rate is approximately:

= 6% - 4%

= +2%.

(Calculated more strictly, it would be (1.06 / 1.04) - 1 = +1.92%, all rates being effective annual rates.)

**Example 4**

When the nominal rate is 3%

and the inflation rate is 4%,

the real rate is approximately:

= 3% - 4%

= -1%.

(Calculated more strictly, it would be (1.03 / 1.04) - 1 = -0.96%.)

2.

Inflation-proof.

3.

Tangible. For example the *real assets* of a business would include its stock, plant and machinery.

4.

*Real property* means land and buildings.

5.

Real-life issues and opportunities are those with a strong foundation in practical experience.

(Contrasted with other issues which are considered to be more theoretical.)

6. *Options*.

Relating to an operational decision or outcome.

7. *Economics*.

Referring to the part of the total economy which excludes financial markets and financial services.

8. *Brazil*.

The Brazilian Real (BRL) is the currency of Brazil.

## See also

- Brazil
- BRL
- Inflation
- Real income
- Real interest rate
- Real rate
- Nominal
- Real estate
- Real option
- Real economy
- Effective annual rate
- Treasury inflation-indexed securities