Assumptions and method
Inflation and nominal rate must use the same period and currency basis.
Test a scenario
Use the result in a decision
Use consistent currency, timing and price assumptions.
Inflation and nominal rate must use the same period and currency basis.
Set a baseline and change one assumption to compare outcomes.
A worked example
Follow the fixed teaching example
- Convert percentages to fractions.
- Real rate = (1.08 ÷ 1.03 − 1) × 100 ≈ 4.8544%.
These illustrative inputs describe a project scenario, not a published benchmark. All monetary inputs use the same currency and price basis.
- Nominal rate (%)
- 8
- Inflation per period (%)
- 3
- Real rate
- 4.8544 %
Interpret the output only within the assumptions above. Changing the inputs changes the result; it does not validate the inputs.
Source & credit
Standard financial mathematics; no single inventor is asserted.
OpenStax: Principles of Finance, capital budgeting
This is independently written code and explanation of the underlying method. The linked publication, its diagrams and its trademarks remain its owner’s material; no permission to reuse them is implied.