Question

Why does inflation adjustment matter?

Answer 1

The inflation adjustment is required to ascertain the real return.The nominal return is different from real return due to inflation. Hence when an investment has to be assessed for its returns,we compute the real return of investment.This is because real value of money received in future will be lesser than that received today due to inflationary factors.

The inflation-adjusted return can be computed by the following method. First, the ROI must be calculated. Thereafter the inflation must be calculated. And then the inflation amount must be geometrically released of the investment's return.