Question

a stock had a return of 9.7 percent last year. if the inflation rate was 2 percent, what was the approximate real return?

Answer 1

7.5% is the real rate of return

real rate of return = (1+NominalRate) ÷ (1+InflationRate)-1

real rate of return= [(1 + 0.097) / (1 + 0.02)] -1

real rate of return = 0.075 or 7.5%

What is real rate of return?

The annual rate of return that is taken into account after taxes and inflation is known as the real rate of return. A nominal rate of return, on the other hand, is one that excludes taxes and inflation. Similar to this, the real rate of return is one that accounts for taxes or inflation in its computation.

How do you calculate the real rate of return?

The real rate of return formula is: (1+NominalRate) ÷ (1+InflationRate)-1. This calculation determines the cash value of your investment after accounting for the impact of inflation and taxes.