Inflation-Adjusted Return

AAA

DEFINITION of 'Inflation-Adjusted Return'

A measure of return that accounts for the return period's inflation rate. Inflation-adjusted return reveals the return on an investment after removing the effects of inflation.

It is calculated as follows:

Inflation-Adjusted Return



Also, a simple approximation for inflation-adjusted return is given by subtracting the inflation rate from the rate of return.

INVESTOPEDIA EXPLAINS 'Inflation-Adjusted Return'

Removing the effects of inflation from the return of an investment allows the investor to see the true earning potential of the security, without external economic forces. For example, say an investor held a bond that returned 4% over one year. Examining only the return shows that this bond earned a positive income. However, if inflation for the year was 5%, the real rate of return on the bond becomes -1%.

RELATED TERMS
  1. Inflation Accounting

    Special accounting techniques, which can be used during periods ...
  2. Nominal

    An unadjusted rate, value or change in value. This type of measure ...
  3. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise ...
  4. Inflation

    The rate at which the general level of prices for goods and services ...
  5. Real Rate Of Return

    The annual percentage return realized on an investment, which ...
  6. Required Rate Of Return - RRR

    The minimum annual percentage earned by an investment that will ...
Related Articles
  1. Why The Consumer Price Index Is Controversial
    Economics

    Why The Consumer Price Index Is Controversial

  2. Curbing The Effects Of Inflation
    Bonds & Fixed Income

    Curbing The Effects Of Inflation

  3. What You Should Know About Inflation
    Economics

    What You Should Know About Inflation

  4. Introduction To Inflation-Protected ...
    Options & Futures

    Introduction To Inflation-Protected ...

comments powered by Disqus
Hot Definitions
  1. Halloween Massacre

    Canada's decision to tax all income trusts domiciled in Canada. In October 2006, Canada's minister of finance, Jim Flaherty, ...
  2. Zombies

    Companies that continue to operate even though they are insolvent or near bankruptcy. Zombies often become casualties to ...
  3. Witching Hour

    The last hour of stock trading between 3pm (when the bond market closes) and 4pm EST. Witching hour is typically controlled ...
  4. October Effect

    The theory that stocks tend to decline during the month of October. The October effect is considered mainly to be a psychological ...
  5. Repurchase Agreement - Repo

    A form of short-term borrowing for dealers in government securities.
  6. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
Trading Center