Real rate of return: A real rate of return is a rate of return which give returns value after adjusting all the related information or factors which helps to calculate return on investment. The other factors are tax, inflation rate etc. It provides correct value of return on investment. This rate helps to decide whether it is beneficial to invest in that project for investor or not. Formula: Real rate of return = [(1+nominal rate) / (1+inflation rate)] -1 Nominal rate of return: A nominal rate of return is a rate which doesn’t adjust any further information or you can say it does not include other factors which affects the return on investment. It does not help to make a correct investment decision. The rate tells how much investor approximately earns annually on investing in a project. Formula: Nominal rate of return = Market value – Original investment value / Original investment value Example:...
This blog is totally for education purpose which helps to solve finance related numerical like time value of money, annuity ,perpetuity, technique of capital budgeting, cost of capital, working capital management and hire purchase etc.