Unformatted text preview: return. Over that same time period, inflation was 2%. To get the real return, we subtract 2% from 6% and get a real return of 4% . Using the real return is the best way to measure your long-term investment performance because shows the actual increase in purchasing power. The nominal return is the rate of return on an investment without adjusting for inflation . It is calculated simply by taking the dollar amount of the return and comparing it to the amount invested . A high nominal return does not guarantee a real profit. Nominal returns measure the increase in the dollar value of an investment, but real returns measure how much purchasing power increases over time. If investors care about how much they can buy with the money that they accumulate, then real returns are more important than nominal returns. Nominal returns are important too. For example, investors pay taxes on nominal returns....
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This note was uploaded on 10/15/2011 for the course FIN 550 taught by Professor Smith during the Spring '11 term at Berklee.
- Spring '11