No. of Recommendations: 1
For those who find the problem of how to discount inflation an interesting one, you should look at a post Jack recently did at the Beginners Board in response to a question about discounting APPl. Bonds aren’t stocks, but the series of questions he asks after he runs his numbers do apply, and they can be summarized this way:

What do the numbers MEAN? (not just what ARE they).

It’s not the math of inflation that anyone has trouble with, and which an average 4th grader could understand, but the assumptions driving the needed formulas. That’s what no one is willing to examine afresh, because the consequences would be so inconvenient to financial planning. So the impact of inflation on returns is generally ignored, or understated.

But don’t take my word for it. Spend the couple of hours it takes to model the problem and build inflation-discounting formulas you know you can trust (Or not. The choice is yours to make.)

http://boards.fool.com/jared-discount-rate-i-dont-know-what-...
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