Inflation-Adjusted Returns Calculator

Formula

The formula to calculate the inflation-adjusted return (r_i) is:

\[ r_i = \left( \frac{1 + r_n}{1 + i} \right) - 1 \]

Where:

Inflation-Adjusted Return: Also known as real return, it measures the return on an investment after accounting for inflation. This metric provides a more accurate reflection of an investment’s value over time, as it considers the eroding effects of inflation on purchasing power. By adjusting for inflation, investors can better understand the true growth of their investments and make more informed financial decisions.

Let's say the nominal return (r_n) is 8% and the inflation rate (i) is 3%. Using the formula:

\[ r_i = \left( \frac{1 + 0.08}{1 + 0.03} \right) - 1 \]

We get:

\[ r_i = \left( \frac{1.08}{1.03} \right) - 1 \approx 0.0485 \, \text{or} \, 4.85\% \]

So, the inflation-adjusted return is approximately 4.85%.