Real Rate of Return
The real rate of return is the rate of return on an investment after adjusting for inflation. It is a measure of the actual return on an investment, taking into account the effects of inflation. It is calculated by subtracting the inflation rate from the nominal rate of return. The real rate of return is important for investors because it allows them to compare the returns on different investments and determine which one is the most profitable.
History of the Term
The concept of real rate of return has been around since the early 1900s. It was first used by economists to measure the purchasing power of money over time. The idea was to compare the purchasing power of money at different points in time, taking into account the effects of inflation. This allowed economists to measure the true value of money over time.
In the 1950s, the concept of real rate of return was adopted by investors. They began to use it to measure the actual return on their investments, taking into account the effects of inflation. This allowed investors to compare the returns on different investments and determine which one was the most profitable.
Table of Comparisons
| Investment | Nominal Rate of Return | Inflation Rate | Real Rate of Return |
|---|---|---|---|
| Stock A | 10% | 2% | 8% |
| Stock B | 12% | 2% | 10% |
Summary
The real rate of return is the rate of return on an investment after adjusting for inflation. It is a measure of the actual return on an investment, taking into account the effects of inflation. It is important for investors because it allows them to compare the returns on different investments and determine which one is the most profitable. For more information on the real rate of return, you can visit websites such as Investopedia, The Balance, and Investing.com.
See Also
- Nominal Rate of Return
- Inflation Rate
- Time Value of Money
- Risk-Adjusted Return
- Compound Annual Growth Rate
- Internal Rate of Return
- Net Present Value
- Real Interest Rate
- Real Return Bond
- Real Return Fund
