If you receive a total return of 8 on your investment portfo

If you receive a total return of 8% on your investment portfolio but inflation is running at 5% per year, what is your real rate of return?

Solution

Real rate of return=(1+nominal rate)/(1+inflation rate)-1

=(1+0.08)/(1+0.05)-1

=(1.08/1.05)-1

which is equal to

=2.86%(Approx).