inflation rate: 3%
investment return: 7%
The shortcut formula is: Nominal Return - Inflation Rate = Real Rate of Return
In this case the answer would be: 7% - 3% = 4%
The more precise formula is: (1 + nominal rate)/(1 + inflation rate) - 1 = Real Rate of Return
In this case the precise answer would be (1+ 0.07)/(1 + 0.03) - 1 = 3.88%
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