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. What is the Difference Between Real and Nominal Interest Rates?

    Learn what nominal interest rates and real interest rates are, how real interest rate takes into account the inflation rate, ... Read Answer >>
  4. 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 >>
  5. 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 >>
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. 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 ...
  3. Investing

    Understanding Market Risk Premium

    Market risk premium is equal to the expected return on an investment minus the risk-free rate. The risk-free rate is the minimum rate investors could expect to receive on an investment if it ...
  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

    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 ...
  9. Financial Advisor

    A Guide on the Risk-Adjusted Discount Rate

    When a project or investment faces higher amounts of risk or uncertainty, it may be appropriate to utilize the risk-adjusted discount rate.
RELATED TERMS
  1. Real Interest Rate

    An interest rate that has been adjusted to remove the effects ...
  2. Inflation-Protected Security - IPS

    A type of fixed-income investment that guarantees a real rate ...
  3. Nominal Rate Of Return

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

    The actual financial benefit of an investment after accounting ...
  5. Risk-Free Rate Of Return

    The theoretical rate of return of an investment with zero risk. ...
  6. Risk-Free Return

    The theoretical rate of return attributed to an investment with ...
Hot Definitions
  1. Free Cash Flow - FCF

    A measure of financial performance calculated as operating cash flow minus capital expenditures. Free cash flow (FCF) represents ...
  2. Leverage Ratio

    Any ratio used to calculate the financial leverage of a company to get an idea of the company's methods of financing or to ...
  3. Two And Twenty

    A type of compensation structure that hedge fund managers typically employ in which part of compensation is performance based. ...
  4. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying ...
  5. Expense Ratio

    A measure of what it costs an investment company to operate a mutual fund. An expense ratio is determined through an annual ...
  6. Mezzanine Financing

    A hybrid of debt and equity financing that is typically used to finance the expansion of existing companies. Mezzanine financing ...
Trading Center