## How to find nominal rate of return

The real rate of return is the rate of return on an investment after adjusting for inflation. Formula. The real rate of return calculation formula (known as Fisher equation) is as following: For example, if you have a nominal rate of return of 6% on a investment in a period when inflation is averaging 2%, your real rate of return is 3.922%.

As you already know – the rate of return on the investment or the bank offers is the nominal rate of return. However, to find out the inflation rate, we need to use the consumer price index . Alternatively, the businesses can use a different consumer price index to calculate the inflation or they can only take the goods and services into account that are related to their business. The real rate of return formula is the sum of one plus the nominal rate divided by the sum of one plus the inflation rate which then is subtracted by one. The formula for the real rate of return can be used to determine the effective return on an investment after adjusting for inflation. n = nominal rate of return i = inflation rate For example, if you have a nominal rate of return of 6% on an investment in a period when inflation is averaging 2%, your real rate of return is 3.922%. In other words, even though the nominal rate of return on your savings is 5%, the real rate of return is only 2%, which means the real value of your savings increases by only 2% in a year. The rate per compounding period P = R / m, in percent. Periods which can be any time unit you want such as years. Period commonly a period will be a year but it can be any time interval you want as long as all inputs are consistent. Nominal Interest Rate (R) is the nominal interest rate or "stated rate" in percent. r = R/100 Compounding Periods (m) For example, if the nominal interest rate offered on a three-year deposit is 4% and the inflation rate over this period is 3%, the investor’s real rate of return is 1%. On the other hand, if the nominal interest rate is 2% in an environment of 3% annual inflation, the investor’s purchasing power erodes by 1% per year.

## 1 Apr 2019 If one uses the nominal rate of 8% in the above formula, the maturity value of Rs 1 lakh invested in a five-year FD, compounded quarterly, works

The real interest rate reflects the additional purchasing power gained and is based on the nominal interest rate and the rate of inflation. Learn how to find the real  The dollar amount of the return is compared to the investment amount to get the nominal rate of return. The return amount is not adjusted for inflation, tax  The formula for the real rate of return can be used to determine the effective return on an investment after adjusting for inflation. The nominal rate is the stated   The real rate of return calculation formula (known as Fisher equation) is as follows: r = (1 + n)/(1 + i) - 1. where r = real rate of return n = nominal rate of return Instead of simple subtraction, you sometimes see the calculation of the real return as: ((1+return) / (1+inflation)) - 1. E.g. when the nominal return = 5% and inflation