What is the nominal return rate?

The nominal rate of return on investment is the rate at which the investment generates profit or loss without factoring other financial information. For example, if someone makes an investment of $ 100 (USD) and receives a return on $ 110, then the nominal return rate on this investment was 10%, which is a percentage of profit. Unlike this value, the actual rate of return, which factors in other financial aspects, such as taxes or inflation, create a more realistic value for return. At any time, a specific investment opportunity determines the level of return on investment, usually provides a nominal return rate unless otherwise indicated. This rate is relatively simple if the initial investment value and final return are known. This is also important to take into account that this type of speed is usually a "simple" rate that does not include increased value due to composition.

for someone to determine noThe minimum return on the investment, simply determines profit and distributes it with an initial investment. Someone invested $ 100 to receive $ 150, earned a $ 50 profit. This amount is then divided by the initial amount of investment for generating the nominal return rate, which is 50%. Such a rate can also be referred to as a simple or annual return rate, depending on the time range in which it is calculated.

While the nominal level of return on investment is important, investors should always consider the actual return level. The real rate is the nominal return adapted for other financial considerations such as taxes, combined revenues and inflation. If Someone invests $ 100 and earns $ 110, then the return rate would seem 10%. However, when this amount is modified by inflation, it can be significantly smaller. The positive percentage of inflation is usually deducted from the nominal rate, so the 10% rate in an economy with 3% inflation would have a actual return rate of only 7%.