Financial Quotient

What is real rate of return?

The real rate of return is the annual percentage profit on an investment, after taking into consideration the effect of inflation.

The nominal rate of return is derived by dividing the actual dollar amount earned over the capital amount invested. You can calculate the real rate of return by taking away the rate of inflation from the nominal rate of return.

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A version of this article appeared in the print edition of The Sunday Times on November 18, 2018, with the headline 'What is real rate of return?'. Print Edition | Subscribe