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Nominal rate of return

Nominal rate of return

The nominal rate of return is the total return earned by an investment before accounting for inflation, taxes and fees.

If a gold coin was purchased for 100 USD and sold for 110 USD then the nominal rate of return was 10%. This does not mean the owner has 10% more purchasing power. Inflation between the purchase and sell date likely reduced the benefit. Furthermore, the owner will likely pay taxes on the profits and possibly other fees like shipping when buying/selling. The real rate of return accounts for the actual, realized increase in purchasing power.

Related Links

Investopedia's article on nominal rate of return

Corporate Finance Institute's definition of nominal rate of return