What do you call the nominal rate of interest adjusted for any loss in purchasing power during the investment period?

The term used to describe the nominal rate of interest adjusted for any loss in purchasing power due to inflation over the investment period is known as the real rate of interest. This adjustment reflects the actual increase in purchasing power that an investor earns from an investment after accounting for inflation.

In essence, the nominal rate represents the stated interest rate before any adjustments, whereas the real rate provides a clearer picture of the actual financial benefit derived from an investment, as it accounts for how inflation affects the value of money over time. This distinction is crucial for investors making decisions based on the true return on their investments, as it helps them understand the effective growth of their capital in terms of purchasing power.

Understanding the real rate of interest is particularly important during periods of high inflation, where the nominal rate may appear attractive, but if inflation is equally or more significant, the real return could be minimal or even negative. Hence, focusing on the real rate helps investors make more informed choices regarding the viability and attractiveness of investment opportunities in an inflationary environment.