Indexation refers to a process of adjusting the nominal interest rate so that it is equal to the real interest rate. O using a l
aw or contract to automatically correct a dollar amount for the effects of inflation. O using a price index to deflate dollar values. an adjustment made by the Bureau of Labor Statistics to the CPI so that the index is in line with the GDP deflator.
Indexation is the process of using a statute or contract to automatically adjust a dollar amount for the impacts of inflation to bring the nominal interest rate into line with the actual interest rate.
<h3>What is Indexation?</h3>
Indexation refers to the process of changing a price, wage, or other value in response to changes in another price or a group of related values. Indexation can be used to account for changes in prices and costs across regions, as well as to account for the effects of inflation, cost of living, and input prices over time. Deindexation is the unwinding of indexation, which is a mechanism to adjust income transfers using a price index in order to maintain the public's purchasing power after inflation. The purchase price of an investment is modified through indexation to account for the impact of inflation on it. Lower earnings result from a greater purchasing price, which in turn results in a lower tax.
The constant cash flow over a indefinite period of time is the perpetuity. The dividend payment on the preferred is also considered as perpetuity because it pays the constant amount of dividend and there is no time limit for the payment.
Value of the preferred share can be determine by following formula
Value of Perpetuity / Cash flow / required rate of return
Price of share = Dividend Payment / Rate of return
