The nominal return on an investment is the return before adjusting for inflation. Which term describes this concept?

• A. Nominal return
• B. Real return
• C. Inflation-adjusted return
• D. Purchasing power gain

Answer: (A)

Nominal return is the gain on an investment measured in current dollars, before removing the effect of inflation. It shows how much money you earned in dollar terms, but it doesn’t reflect how much those dollars will actually buy after prices rise. The concept in focus is the difference between what you earn literally (nominal) and what that earnings can purchase once inflation is accounted for (real return). Real return is inflation-adjusted, calculated either approximately as nominal minus inflation, or exactly with the formula (1 + nominal) / (1 + inflation) − 1. Since the question specifies the return before adjusting for inflation, the correct term is nominal return. Inflation-adjusted return, sometimes called real return, describes the amount after inflation, and purchasing power gain is not a standard term in this context.