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Ch.1 · Comparing Financial Products · medium

What is 'real rate of return' in the context of investments?

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EXPLANATION

Real rate of return = Nominal return − Inflation rate (approximately). If an FD earns 7% but inflation is 6%, the real return is ~1%. Real returns matter because they measure actual purchasing power gained, not just nominal growth.

A.The return guaranteed by the government on sovereign instruments

B.The post-tax return after deducting TDS

C.The nominal return adjusted for inflation [✓ Correct]

D.The CAGR calculated on actual investment amount excluding brokerage

EXPLANATION

Real rate of return = Nominal return − Inflation rate (approximately). If an FD earns 7% but inflation is 6%, the real return is ~1%. Real returns matter because they measure actual purchasing power gained, not just nominal growth.

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