Real Rate of Return Excel Template

Calculate your exact return when investing a specific amount of money.

by Dheeraj Vaidya CFA FRM
Co-founder & CEO @ eduCBA & founder of WallStreetMojoFollow 170

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Description
Real rate of return helps investors calculate their exact return when they invest a particular sum of money into a project.

The formula is the following:

Real Rate of Return: (1 + Nominal rate)/(1 + Inflation Rate) -1

This formula first considers the nominal rate, then considers the inflation rate. The rate of return offered by the investment or bank us the nominal rate of return. However, we require the consumer price index to calculate the inflation rate. Businesses can use different consumer price indexes to calculate the inflation, or alternatively can take the goods and services into account that are related to their business.

The formula to calculate the rate of inflation is the following:

Rate of Inflation = (CPI x+1 – CPI x) / CPI x

Here, CPI x means initial consumer index.

If you have invested a substantial amount, it is a good idea to use the real rate of return to calculate how much you are actually earning on an investment. However, if you merely want to see how much you are making in a casual sense, simply use this formula: (nominal rate - inflation rate).

This template allows you to calculate real rate of return with ease.

This Best Practice includes
1 Excel Template and 1 Tutorial Video