Knowing the geometric mean for inflation for some time period, we can add 1.0 and raise it
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Knowing the geometric mean for inflation for some time period, we can add 1.0 and raise it to the nth power. We then divide the cumulative wealth index on a nominal basis by the ending value for inflation to obtain inflation‐adjusted returns. For example, given a cumulative wealth index of $2,420.46 for common stocks for 1926–2010, and a geometric mean inflation rate of 3.00 percent, the inflation‐adjusted cumulative wealth index for this 85‐year period is calculated as
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$2420.46/(1.03)85 = $2420.46/12.336 = $196.22
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Investments Analysis And Management
ISBN: 9781118975589
13th Edition
Authors: Charles P. Jones, Gerald R. Jensen
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