Your approximate annual real rate of return will be 4.1%.
What is the annual real rate of return?
- The annual percentage of profit on an investment that has been prorated for inflation is known as the real rate of return. As a result, the real rate of return provides an accurate representation of the real purchasing power of a particular sum of money over time.
- The investor can calculate how much of a nominal return is real return by adjusting the nominal return to account for inflation.
- Investors must account for the effects of additional factors, such as taxes and investing fees, in addition to correcting for inflation, in order to assess real returns on their investments or to make investment decisions.
Therefore,
5.7% - 1.6%
= 4.1%.
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