Type of calculation: Adjusting a nominal return for
inflation to find how much your purchasing power actually grew.
Common mistake: Simply subtracting the rates
(7% − 3% = 4%) is only an approximation. The exact real rate is slightly lower.
How to use the calculator: This uses the Fisher
equation. Divide the growth factor of your return by the growth factor of inflation, then subtract 1.
The formula:
Real return = ((1 + nominal/100) / (1 + inflation/100) − 1) × 100
Real return = ((1 + 7/100) / (1 + 3/100) − 1) × 100
≈ 3.88%