Final answer:
The real rate of return adjusts for inflation and taxes to provide a more accurate representation of an investment's value.
Explanation:
Real rate of return is the rate of return adjusted for inflation and taxation, providing a more accurate reflection of an investment's true value. For example, if an investment has a nominal return of 8% but inflation is 3%, the real rate of return would be 5%. This calculation considers the impact of inflation and taxes on the investment's actual growth.
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