Question

How to calculate inflation adjusted current value of moneyreturn

Answer 1

Answer:

Step 1 is to calculate the investment's return using the following formula:

Return = (Ending price - Beginning price + Dividends) / (Beginning price) = ($90,000 - $75,000 + $2,500) / $75,000 = 23.3% percent.

Step 2 is to calculate the level of inflation over the period using the following formula:

Inflation = (Ending CPI level - Beginning CPI level) / Beginning CPI level = (721 - 700) / 700 = 3 percent

Step 3 is to geometrically back out the inflation amount using the following formula:

Inflation-adjusted return = (1 + Stock Return) / (1 + Inflation) - 1 = (1.233 / 1.03) - 1 = 19.7 percent

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