Source: https://guthlabs.ai/docs/instruments/real-vs-nominal-return/mechanism/

instrument mechanism / verified-clean

# Real vs Nominal Return mechanism

The inspectable method record for Real vs Nominal Return, kept separate from implementation and qualification.

Status: **VERIFIED_CLEAN**Lifecycle: **verified-clean**

## Model scope

The formula is suitable as an educational estimate only after the input convention is made explicit. Update the formula label to use '=' under the stated effective-rate assumptions, or explain what approximation is intended. Preserve the existing educational-only and non-individualized-advice labeling.

- The formula real_r=(1+nominal)/(1+inflation)-1 is the standard Fisher relation for effective nominal and inflation rates measured over the same period; under those assumptions it is exact, so the approximation symbol (≈) is mathematically imprecise.

- The spec does not define whether the nominal return and inflation rate are effective rates for the same period or whether either is an APR, simple rate, or annualized rate. Mixing these conventions can produce an invalid result.

## Units and conventions

- Inputs labeled as percentages are interpreted by converting percent to decimal before calculation: 8% becomes 0.08.

- Nominal return and inflation use the same time period and compounding basis.

- The nominal return is a total effective return before any taxes, fees, or other deductions.

- Output is converted back from decimal to percentage points.

## Inspectable vector

One of 4 source-bound review vectors:

````
{
  "inputs": {
    "nominal_return_pct": 8,
    "inflation_rate_pct": 3
  },
  "expected_outputs": {
    "real_return_pct": 4.85436893
  },
  "working": "Convert percentages: nominal=8/100=0.08; inflation=3/100=0.03. Compute real=(1+0.08)/(1+0.03)-1=1.08/1.03-1=108/103-1=5/103=0.0485436893. Convert to percent: 0.0485436893*100=4.85436893%."
}
````

## Failure boundary

**BREAK_CLAIMED** · SELF_FLAGGED

The formula has a hard singularity at inflation = -100%, requiring explicit input rejection. It also has no documented branch behavior around that singularity and is vulnerable to a 100-times scale error if percentage inputs are interpreted as decimal rates.

## Other records

[01**Overview**](<https://guthlabs.ai/docs/instruments/real-vs-nominal-return/>)[03**Implementation**](<https://guthlabs.ai/docs/instruments/real-vs-nominal-return/implementation/>)[04**Qualification**](<https://guthlabs.ai/docs/instruments/real-vs-nominal-return/qualification/>)

## Sources and evidence

These pointers bind the page to evidence. They do not grant authority or collapse verification into deployment.

- `VERIFIED_LEDGER.json`

- `evidence-tranche4/tranche4-results.json`

- `BOUNDARY_HAZARD_CATALOG.json`