The real rate of return is the percentage of return on investment that an investor receives or expects to receive after adjusting for inflation. For example, if an investor is considering purchasing a bond with a nominal yield of 4% and the inflation rate is 3%, the bond's real return rate is 1%.

Real rates of return refer to the actual, inflation-adjusted gains or losses an investor experiences on an investment after accounting for the effects of inflation. In contrast to nominal returns, which represent the raw percentage increase or decrease in an investment's value, real rates of return provide a more accurate measure of purchasing power. To calculate the real rate of return, one subtracts the inflation rate from the nominal rate of return. The resulting figure reflects the genuine increase in wealth, considering the eroding impact of inflation on the value of money over time. Investors use real rates of return to assess the true profitability of an investment and make more informed decisions about their portfolios, as it helps in gauging the actual growth or decline in purchasing power.