Calculating the Real Rate of Return

Posted by Brendan Flaherty

May 27, 2016 5:41:19 PM

When calculating the real rate of return, follow these steps:

Take the difference between the nominal rate and the inflation rate as a WHOLE number, then divide by 1 plus the inflation rate as expressed as a decimal.

If the total return (nominal) is 12%, and the inflation rate is 4%, then 12 – 4 = 8, and 8 divided by 1.04 = 7.692

Topics: Course 3: Investment Planning, Time Value of Money