Real return adjusts an investment’s nominal return for inflation.
Real Rate of Return Calculator
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Real rate of return
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Table of Contents
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What is Real Rate of Return?
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How to Use This Calculator
- Enter or select Nominal rate of return, Inflation rate.
- Check the unit beside each measurement. For a percentage or rate, use the scale and time period stated in the form.
- Choose Calculate, then compare the output with the formula and example below. If you change a value or option, calculate again to update the result.
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Formula Used
Real return = (1+nominal return)/(1+inflation)−1
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Variables Explained
| Input | What it means |
|---|---|
| Nominal rate of return | The stated rate or percentage, entered using the scale and time period shown in the form. |
| Inflation rate | The stated rate or percentage, entered using the scale and time period shown in the form. |
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Worked Example
A 10% nominal return with 4% inflation gives about 5.77% real return.
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Why Use This Calculator?
Compare the result with the underlying statement, budget or proposed transaction. It is most useful when every amount uses the same reporting period and the same accounting definition.
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Common Mistakes
- Subtracting inflation is only an approximation; the ratio is the exact compound adjustment.
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Frequently Asked Questions
Should I use monthly or annual figures?
Use one consistent period for every amount and rate in the relationship. If a form specifies an annual rate or a monthly amount, follow that label rather than mixing time periods.
Does the result include fees and tax?
Only the costs and taxes represented by the inputs and formula are included. A real transaction can include other charges, so compare the estimate with the underlying agreement or statement.
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Sources & References
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