The situation
Savings rise from ₹2 lakh to ₹2.16 lakh over one year and the relevant price basket rises 6%. Ignore tax.
Your task
Find the exact real return and ending value in starting-year rupees.
Reveal step-by-step solution
Set up the problem
Nominal growth factor is 2.16 ÷ 2.00 = 1.08. Price growth factor is 1.06.
Work through the numbers
Real return = 1.08 ÷ 1.06 − 1 ≈ 1.89%. Real ending value ≈ ₹2.16 lakh ÷ 1.06 = ₹2.038 lakh.
Interpret the result
Purchasing power rose by about ₹3,774. Use a price basket relevant to the actual goal.
What to remember
Divide growth factors over the same period. Subtracting rates is an approximation.