R EA L V S N O M IN A L R ATE

O F R ETU R N

N om inalRate
Also known as stated rates
The rate at which your money grows
Can be high and low
Quoted by banks and Savings Institutions over

your investments/Deposits.
Its not inflation adjusted any more
The total amount youve accumulated like Interest
payments + Principal amount, doesnt considers
how much portion from this income will be gone
while paying for inflation.
Thats why it cant tell the changes In purhasing
power.

RealRate ofreturn
Surely adjusted for inflation
Tells you how much purchasing

power is raised ?
Actual funds an investor is left with
after paying for inflation.
Realistic rate
Calculated to see by how much
percentage your purchasing power
increased or dereased.

Form ula

1+ real rate of return = 1+ Nominal

Rate/1+inflation rate