A:

The real rate of return is the amount of interest earned over and above the:
a. discount rate.

b. tax rate.

c. inflation rate.

d. risk-free rate of return.



The correct answer is "c", since the real rate of return measures the investor's rate of return in excess of the inflation rate.

RELATED FAQS
  1. The real rate of return is the amount of interest earned over and above the:

    a. discount rate. b. tax rate. c. inflation rate. d. risk-free rate of return. Answer: C Since the real rate of return measures ... Read Answer >>
  2. Can real interest rates be negative?

    Discover the circumstances that can cause real interest rates to be negative and learn how to calculate the values of real ... Read Answer >>
  3. How is it possible for a rate to be entirely risk-free?

    Find out whether there really is such a thing as a risk-free rate of return, and learn why taking the idea of risk-free rates ... Read Answer >>
  4. How is the expected market return determined when calculating market risk premium?

    Find out how the expected market return rate is determined when calculating market risk premium and how these figures are ... Read Answer >>
  5. How is the risk-free rate of interest used to calculate other types of interest rates ...

    Learn how the risk-free rate is used to compare the yields on bonds, and understand how T-bills are used as a proxy for the ... Read Answer >>
Related Articles
  1. Insights

    What's a Real Rate of Return?

    A real rate of return is an annual percentage investment return that’s adjusted for inflation, taxes or other factors.
  2. Managing Wealth

    How Interest Rates Affect Property Values

    Along with their impact on mortgages, interest rates affect capital flows, the supply and demand for capital, and an investor’s required rate of return.
  3. Investing

    Risk-Free Rate of Return

    The risk-free rate of return is the theoretical rate of return of an investment with zero risk. The risk-free rate represents the interest an investor would expect from an absolutely risk-free ...
  4. Investing

    What Investors Should Know About Interest Rates

    Understanding interest rates helps you answer the fundamental question of where to put your money.
  5. Investing

    Interest Rates Explained: Nominal, Real, Effective

    Interest rates are divided into subcategories. Smart investors look beyond the nominal or coupon rate of a bond or loan to see if it fits their objectives.
  6. Investing

    More Ways to Evaluate Portfolio Performance

    The Jensen measure is another tool investors use to include risk when measuring portfolio performance.
  7. Investing

    Retirement Planning: Why Real Rates of Return Matter Most

    Here's how to plot your real rate of return, understand your "personal inflation rate" and safeguard your retirement funds against inflation.
  8. Insights

    10 Countries With Lower Interest Rates Than the US

    Learn about the 10 countries with lower interest rates than the United States and how interest rates indicate a country's economic outlook.
  9. Insights

    Inflation's Impact on Stock Returns

    When stocks are divided into growth and value categories, the evidence is clear that value stocks perform better in periods of high inflation, and growth stocks perform better during periods ...
  10. Investing

    The Money Market: A Look Back

    Learn how past inflationary periods can predict future real rates of return for cash investments.
RELATED TERMS
  1. Nominal Rate Of Return

    The amount of money generated by an investment before expenses ...
  2. After-Tax Real Rate Of Return

    The actual financial benefit of an investment after accounting ...
  3. Risk-Free Return

    The theoretical rate of return attributed to an investment with ...
  4. Inflation-Protected Annuity - IPA

    An annuity investment that guarantees a real rate of return at ...
  5. Timeliness

    A proprietary rating system used to rate stocks while taking ...
  6. Risk-Free Asset

    An asset which has a certain future return. Treasuries (especially ...
Hot Definitions
  1. Pro-Rata

    Used to describe a proportionate allocation. A method of assigning an amount to a fraction, according to its share of the ...
  2. Private Placement

    The sale of securities to a relatively small number of select investors as a way of raising capital.
  3. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  4. Backward Integration

    A form of vertical integration that involves the purchase of suppliers. Companies will pursue backward integration when it ...
  5. Pari-passu

    A Latin phrase meaning "equal footing" that describes situations where two or more assets, securities, creditors or obligations ...
  6. Interest Rate Swap

    An agreement between two parties (known as counterparties) where one stream of future interest payments is exchanged for ...
Trading Center