investment real return with inflation rate

Business & Finance
Tutor: None Selected Time limit: 1 Day

inflation rate: 3%

investment return: 7%

real return: ??
Apr 5th, 2015

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%

Apr 5th, 2015

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