Listen to a Business English Dialogue about Real rate of return return
Johnny: Hey Morgan, do you know what the real rate of return is in finance?
Morgan: Yeah, I think it’s the return on an investment after accounting for inflation.
Johnny: That’s right. It measures the actual purchasing power gained or lost on an investment.
Morgan: How is the real rate of return different from the nominal rate of return?
Johnny: The nominal rate of return doesn’t account for inflation, so the real rate of return provides a more accurate picture of the investment’s performance.
Morgan: Are there any factors that can affect the real rate of return?
Johnny: Inflation is a major factor, but other variables like taxes, fees, and changes in purchasing power can also impact the real rate of return.
Morgan: So, a positive real rate of return means the investment has outpaced inflation?
Johnny: Exactly. A positive real rate of return indicates that the investment has preserved or increased its purchasing power over time.
Morgan: Thanks for explaining that, Johnny. The real rate of return seems like a crucial metric for evaluating investments.
Johnny: No problem, Morgan. It’s essential for investors to consider the effects of inflation when assessing investment performance.