Real Rate of Return = (1 + nominal rate) / (1 + inflation rate) -1
If my nominal rate equals the inflation rate I get 0, meaning that my money is worth the same no matter the inflation rate.
If my nominal rate is greater than the inflation I get positive values, meaning my money is worth more the longer I leave in this investment. And vice-versa.
But something weird happens when the nominal rate is 0%, such as when I leave my money in my wallet. In that case the real rate will be
RR = (1 + 0%)/(1 + 5%) -1 = -4.76%
Am I missing something? How do I interpret that? Shouldn't it be -5%?
EDIT: Also, is there anything wrong with the following formula?
Fake Real Rate of Return = ((1 + inflation rate) / (1 + nominal rate) -1 ) * - 1
In that case when the nominal rate is 0% we get the inflation rate, and when the inflation rate equals the nominal rate we get 0%.