NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Introduction to Investment
Which of the following best describes 'real rate of return' on an investment?
Real rate of return is the nominal return adjusted for inflation. It shows the actual increase in purchasing power of the investor's money, rather than the headline percentage earned, so it is the more meaningful measure of wealth growth over time.
- AReturn after adjusting the nominal return for inflationCorrect
- BReturn before deducting any fund management charges
- CReturn earned only from capital appreciation
- DReturn earned over a period longer than one year
Explanation
Real return measures the increase in purchasing power, so it equals the nominal return adjusted for inflation. The other options describe gross returns, capital gains alone, or holding period, none of which define real return.
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