Inflation
- real rate of return = nominal rate of return - inflation rate
- erodes the real value of an investment
- actual gain = real rate of return after taxes
- cyclical: inflation increases → interest rates increase
Inflation Risk
- loss of purchasing power
- e.g., 4% GIC guarantees principal in return, but if inflation is 6%, the purchasing power drops
page revision: 1, last edited: 27 Jul 2007 02:39