Inflation Valuation Lab

Compare cash, bonds, stocks, and property through an inflation valuation map.

Introduction

30 Second Summary

The dollar balance in an account can stay unchanged while groceries and rent cost more. That quiet squeeze makes familiar assets behave differently as prices rise.

In this project, you will build a handwritten inflation valuation map for cash, a fixed-rate bond, a stock-like business, and rental property. The map reveals how purchasing power, cash flows, and discount rates shape each asset's value.

What You'll Build

With your finished page in hand, you can point to any asset and explain what rising prices change in its payoff, buying power, or market value.

By the end of this project, you'll have:

A four-asset scorecard that lets you compare nominal value with real value at a glance.
A bond seesaw that shows why market interest rates and existing fixed-rate bond prices move in opposite directions.
A two-channel valuation map that tests how pricing power supports business cash flows. The same map tests how rent pass-through supports property cash flows when discount rates rise.
Secret Mission: Diagnose an unexpected inflation shock. Defend which asset is most exposed.

Are there any prerequisites?

You only need two sheets of paper plus a pen or pencil. The Calculator app on Mac handles quick checks, with handwritten arithmetic available as a fallback.

Before We Start

This is your moment to commit to the one-page inflation valuation map before any calculations begin. Your purpose keeps the comparison of cash, a fixed-rate bond, a stock-like business, and rental property focused on purchasing power, cash flows, and discount rates.

Set Up Your Paper Valuation Lab

Your written intention gives this comparison a clear destination. A simple paper workspace keeps your attention on the economic relationships behind inflation.

This step turns that intention into two working sheets. You will also verify the Calculator app before any valuation arithmetic begins.

In this step, get ready to:

Prepare two titled paper worksheets.
Reserve four labeled asset rows on the scorecard.
Verify Calculator in Basic view with a percentage calculation.

Prepare the two worksheets

The scorecard holds asset comparisons. The transmission map will hold the later valuation diagram.

Gather two blank sheets of paper.
Place a pen or pencil beside the sheets.
Write Four-Asset Scorecard at the top of the first sheet.
Write Inflation Transmission Map at the top of the second sheet.

Good start. Each sheet now has a clear job.

Open Calculator in Basic view

Basic view gives every later calculation the same simple layout. Verifying that view now removes uncertainty when the arithmetic starts.

Open your Mac's app search.
Enter Calculator in the search field.
Select Calculator from the results.
Click View in the Mac menu bar.
Select Basic.

Calculator now shows its Basic view.

Can't Find Basic View?

Click the Calculator window to make its menu bar active.
Press Command-1 if the View menu looks different.

Get help switching Calculator on your Mac to Basic view.

Complete the lab setup

Percentage entry gives you a quick confidence check before the valuation examples. The result should reflect a 15% increase from the starting amount.

Before you enter the calculation, what total do you expect after adding 15% to 100?

Enter 100 + 15% = in Calculator.

You'll see 115 on the display. You now have a trusted arithmetic check beside your paper model.

The scorecard needs one place for each asset. Separate rows keep their payoffs easy to compare.

Return to the sheet titled Four-Asset Scorecard.
Write cash at the start of the first row.
Write fixed-rate bond at the start of the second row.
Write stock-like business at the start of the third row.
Write rental property at the start of the fourth row.

Before your final check, what should every part of the lab show?

Inspect both paper worksheets.
Check the Calculator display.

Your first sheet should be titled Four-Asset Scorecard. Its four rows should be labeled cash, fixed-rate bond, stock-like business, and rental property.

Your second sheet should be titled Inflation Transmission Map. Calculator should remain in Basic view with 115 on the display.

Your paper lab is ready. Next, you'll compare the four assets by nominal value.

Build a Nominal-Value Scorecard

Your paper lab is ready after the setup from the previous step. The first comparison asks how each asset looks under inflation when you focus on stated dollars.

Nominal value records an amount in current dollars. A ranking based on stated dollars can look convincing before its assumptions are exposed.

In this step, get ready to:

Add four comparison columns to your scorecard.
Record each asset's nominal receipt and adjustment pattern.
Make a first-pass ranking using only nominal dollars.

Add the comparison columns

A shared set of columns makes every row answer the same questions. This structure keeps the comparison consistent across the four assets.

Return to the Four-Asset Scorecard sheet from the previous step.
Draw three vertical lines to divide the sheet into four columns.
Write Asset at the top of the first column.
Write What the owner receives at the top of the second column.
Write Fixed or adjustable? at the top of the third column.
Write First impression under inflation at the top of the fourth column.

You should now see the four reserved asset rows beneath the same four headings.

How the Columns Divide the Question

The Asset column keeps each payoff connected to its owner.
The What the owner receives column identifies the dollars or income produced.
The Fixed or adjustable? column records whether that amount can change.
The First impression under inflation column captures your initial judgment before deeper valuation tests.

Fill the four asset rows

Stay with the promise written in dollars at this stage. Record what each owner receives before deciding how attractive that payoff looks.

Copy Cash | stated dollar balance | fixed nominal dollars across the cash row.
Copy Fixed-rate bond | fixed coupon and principal promises | fixed across the fixed-rate bond row.
Copy Stock-like business | company cash flows | adjustable depending on pricing power, costs, and demand across the stock-like business row.
Copy Rental property | rents and expenses | rents and expenses can adjust across the rental property row.
Add one brief nominal-dollar impression to the final column of each row.

You can now read across every row to see what the owner receives. Each row also shows whether that amount is fixed or adjustable.

What Does Adjustable Mean?

An adjustable entry can respond as business conditions change. The direction of that change still depends on the asset's circumstances.

Pricing power describes a business's ability to raise selling prices while retaining demand. Its cash flows also depend on costs.

Property rents can reset over time. Property expenses can move as well.

Make the nominal-only ranking

Your scorecard now contains enough nominal information to force a first decision. Keep this attempt limited to the dollar promises already written on the page.

Before you rank the rows, consider which asset looks strongest when only stated dollars count.

Write a first-pass ranking from most protected to most exposed under inflation.
Read your ranking from top to bottom.
Try to determine how much each payoff can buy using only the scorecard.
Try to identify the rate used to value future cash flows using only the scorecard.

The nominal amounts cannot show purchasing power. The scorecard also contains no discount rate for valuing future cash flows.

That shortfall is the intended result of the first-pass ranking.

Write It does not account for purchasing power or discount rates used to value future cash flows. beside your ranking.
Circle that sentence as the flaw in your nominal-only ranking.

Before you check the finished page, predict whether every row now answers both scorecard questions.

Verify all four rows by reading down the completed scorecard.

What Should You See?

Cash shows stated dollar balance. Its adjustment entry is fixed nominal dollars.
The fixed-rate bond shows fixed coupon and principal promises. Its adjustment entry is fixed.
The stock-like business shows company cash flows. Its adjustment entry is adjustable depending on pricing power, costs, and demand.
Rental property shows rents and expenses. Its adjustment entry is rents and expenses can adjust.
Each row has a first impression based on nominal dollars. The flaw beside the ranking is circled.

Your first-pass scorecard now gives every asset a clear nominal payoff story. You have made the hidden gap visible on the page.

Next up, you'll measure what those stated dollars can actually buy.

Reveal the Purchasing-Power Loss

Your first-pass scorecard now compares each asset through nominal value. The circled flaw matters because the same number of dollars can buy fewer goods after prices rise.

This step adds real value with a price index ratio. Your Calculator result turns purchasing power into a percentage that can repair the ranking.

In this step, get ready to:

Write the constant-dollar rule that converts a nominal amount into real purchasing power.
Calculate the published price-index example for 2021 and 2022.
Revise your four-asset scorecard to account for real purchasing power.

Write the constant-dollar rule

A price index tracks how the price level changes between periods. A ratio of two indexes expresses a later nominal amount in the purchasing power of the chosen base period.

Switch back to your Four-Asset Scorecard from earlier.
Write this rule below the table: real amount = nominal amount × (base-period price index / later-period price index).

How Does the Ratio Work?

The numerator uses the price index from the period whose purchasing power you want to preserve.
The denominator uses the price index from the later period.
A larger later-period index produces a smaller real amount for the same nominal dollars.

Your scorecard should now show the constant-dollar rule directly beneath the four asset rows.

Calculate the BLS example

The Bureau of Labor Statistics example uses a 2021 price index of 270.970. Its 2022 price index is 292.655.

Before you calculate, do you expect the later dollar's purchasing power to sit above or below 100 percent?

Switch back to the Calculator app from earlier.
Enter 270.970 / 292.655 × 100 to calculate the purchasing-power percentage.

You'll see about 92.6. You have just measured the purchasing-power loss hidden by the nominal-only ranking.

Write A later dollar had 92.6% of the earlier dollar's purchasing power in this example. beneath the rule.

What Does 92.6 Represent?

The percentage compares the purchasing power of a later dollar with an earlier dollar in this historical example. A result below 100 shows that the later dollar buys less.

Revise the four-asset ranking

Fixed nominal promises keep the same dollar amount as prices rise. Adjustable assets depend on how effectively their cash flows respond to the higher price level.

Add a fifth column labeled Real-value effect to the right side of your scorecard.
Write directly exposed when prices rise faster than the balance in the cash row.
Write directly exposed when prices rise faster than payments in the fixed-rate bond row.
Write depends on cash-flow pass-through and valuation in the stock-like business row.
Write depends on rent pass-through, expenses, financing, and valuation in the rental property row.
Revise your circled first-pass ranking to account for purchasing power.

Why Do the Adjustable Rows Stay Conditional?

A business can protect real cash flows when prices rise fast enough to cover higher costs. Rental property can adapt when rent increases outpace rising expenses.

Financing conditions and the rate used to value future cash flows can still reduce market value. These assets depend on several moving parts.

Before you check the finished page, should the purchasing-power percentage be above or below 100 when the later price index is larger?

Check the Calculator display from earlier.

You should see about 92.6 for 270.970 / 292.655 × 100. This matches the BLS example.

Read down the Real-value effect column.

Cash and fixed nominal bond payments should show direct exposure to rising prices. The stock-like business and rental property should show conditional outcomes.

Compare your revised ranking with the four row notes.

Your ranking should now account for real purchasing power across all four assets.

You've closed the gap in the first ranking because every asset now has a real-value story. Next, you'll see why a fixed-rate bond can also lose market value when market interest rates rise.

Reprice a Fixed-Rate Bond

Your scorecard now shows how rising prices weaken the purchasing power of fixed dollars. A fixed-rate bond has another pressure point because its market price can change before maturity.

The Calculator turns that pressure into a one-period present value comparison. You will apply two discount rates to the same future payment.

The seesaw links market interest rates to existing bond prices. Then you will separate market-price risk from purchasing-power risk.

In this step, get ready to:

Draw a seesaw showing the relationship between market interest rates and existing fixed-rate bond prices.
Compare the present value of the same future payment under 5% versus 10% discount rates.
Record the purchasing-power risk separately from the before-maturity market-price risk.

Draw the bond seesaw

A fixed-rate bond keeps its coupon promise when market rates change. Its trading price can still move before maturity.

Market interest rates and existing fixed-rate bond prices generally move in opposite directions.

Sketch a triangular pivot in a clear area on your paper.
Draw a straight beam across the pivot.
Write market interest rate on the left side.
Write existing fixed-rate bond price on the right side.
Add an upward arrow beside market interest rate.
Add a downward arrow beside existing fixed-rate bond price.

You've captured the key market-price relationship in one glance. A higher market interest rate now points toward a lower existing fixed-rate bond price.

Why Do Bond Prices Fall?

When new bonds offer higher market rates, an older fixed payment becomes less attractive to buyers. The existing bond's market price generally falls to compete with current opportunities.

The fixed coupon promise stays the same. The price available before maturity can still move.

Calculate two present values

Present value translates a future cash flow into today's value with a discount rate. A larger discount rate reduces the present value of the same future payment.

Write PV = future cash flow / (1 + discount rate) below your seesaw.
Write 105 / 1.05 beneath the formula as the first calculation.

Before you calculate, which denominator do you expect to produce the lower present value?

Switch back to the Calculator from earlier.
Enter 105 / 1.05.
Press the equals key.

Your display should show 100.

Record the displayed result beside 105 / 1.05.
Write 105 / 1.10 beneath the first calculation.
Enter 105 / 1.10 in Calculator.
Press the equals key.

Your display should show about 95.45. The second result is lower.

Why the Denominator Matters

The 5% rate creates the denominator 1.05.
The 10% rate creates the denominator 1.10.
The larger denominator produces a lower value from the same 105 future payment.

Record the displayed result beside 105 / 1.10.
Underline the lower result.

Second Result Not Lower?

Check that the second denominator is 1.10. A denominator of 1.05 repeats the first calculation.

Help me check my two present-value calculations.

Separate the two bond risks

Your bond now has two distinct risk channels. Purchasing-power risk changes what the fixed payments can buy.

Market-price risk changes the amount someone may pay for the bond before maturity.

Write inflation reduces the real value of fixed payments under your calculations.
Write higher market rates reduce the price available before maturity on the next line.

Before you check the finished page, which side of the seesaw should be lower when the market interest rate is higher?

Compare 105 / 1.05 with 105 / 1.10 on your page.

You should confirm that 105 / 1.05 is greater than 105 / 1.10. The same future payment has a lower present value under the larger discount rate.

Inspect the arrows on your seesaw.

Your arrows should show a higher market interest rate alongside a lower existing fixed-rate bond price.

Read the two risk statements aloud.

Your two statements should keep the real-value loss separate from the price loss available before maturity.

Your bond story now separates fixed-payment purchasing power from changing market price. Next, you'll map the same competition for stocks and rental property.

Map the Two Valuation Channels

Your bond seesaw now proves that a higher market rate lowers the present value of an existing fixed payment. That gives you the discount rate side of the story.

Stocks and property add a second moving part. Inflation can lift their nominal cash flows.

A higher nominal discount rate can reduce what those cash flows are worth today. Their valuation depends on both channels.

In this step, get ready to:

Draw the two paths that connect higher inflation to asset value.
Compare three one-period valuation cards under different cash-flow pass-through assumptions.
Complete the four-asset framework with each asset's response to both channels.

Draw the two competing channels

An asset's value can change because its expected cash flow changes. It can also change because the rate used to value that cash flow changes.

Switch back to the Inflation Transmission Map sheet from earlier.
Write higher inflation near the top center.

Your sheet now has one starting point for both valuation channels.

Draw the first arrow from higher inflation.
Label the first arrow possible cash-flow growth.

The first path now starts at higher inflation. Its label reads possible cash-flow growth.

Write higher value at the first arrow's endpoint.
Draw a second arrow from higher inflation.

Your page now has two arrows leaving the same starting phrase.

Label the second arrow higher nominal discount rate.
Write lower value at the second arrow's endpoint.

The first path now ends at higher value. The second path ends at lower value.

Why both channels matter

A nominal valuation can include expected inflation in future cash flows. It can also include expected inflation in the nominal discount rate.

Your map keeps both effects visible before you judge whether inflation supports or reduces value.

In a one-period present-value fraction, the future cash flow sits above the division line. The discount factor sits below it.

A larger top number supports value. A larger bottom number reduces value.

Compare the valuation cards

The three cards use one-period teaching assumptions. They do not predict future returns.

Write Teaching assumptions, not forecasts above an open area on your map.
Create a small card labeled baseline: 110 / 1.10.
Calculate 110 / 1.10 in the Calculator app from earlier.

The baseline display should show 100.

Create a second card labeled strong pass-through: 121 / 1.15.
Calculate 121 / 1.15 in Calculator.

The strong pass-through display should show about 105.2.

Create a third card labeled weak pass-through: 110 / 1.15.
Calculate 110 / 1.15 in Calculator.

The weak pass-through display should show about 95.7.

What do the cards isolate?

The strong and weak cards use the same discount factor of 1.15. Their different results come from the cash-flow amounts.

The baseline and weak cards use the same future cash flow of 110. Their different results come from the discount factors.

Comparing the strong card with the weak card holds the denominator constant. This isolates the cash-flow channel.

Comparing the baseline card with the weak card holds future cash flow constant. This isolates the discount-rate channel.

Complete the four-asset framework

A stock-like business depends on pricing power. Its costs can absorb part of a revenue increase.

Rental property depends on rent pass-through. Its expenses can absorb part of a rent increase.

Financing affects the owner's cash flow. The required return affects the property's valuation.

Add Cash: no built-in cash-flow response to the Inflation Transmission Map.
Add Fixed-rate bond: fixed promises to the Inflation Transmission Map.

The first two entries now show why fixed nominal amounts have limited cash-flow adjustment.

Add Stock-like business: depends on pricing power, costs, and risk to the Inflation Transmission Map.
Write depends on both channels beside the stock-like business.

The stock-like business now connects its cash-flow flexibility to its valuation pressure.

Add Rental property: depends on rent resets, expenses, financing, and required return to the Inflation Transmission Map.
Write depends on both channels beside rental property.

The map now covers all four assets through the same two-channel structure.

Switch back to the Four-Asset Scorecard from earlier.
Extend the Cash row's Real-value effect cell with no built-in cash-flow response.

The Cash row now covers its direct purchasing-power exposure plus its lack of cash-flow adjustment.

Extend the Fixed-rate bond row with fixed promises are also exposed to market-rate repricing before maturity.

The bond row now separates fixed-payment exposure from market-price exposure.

Replace the Stock-like business row's real-value wording with real-value effect and valuation depend on cash-flow pass-through, costs, risk, and discount rates.
Add depends on both channels to the Stock-like business row.

The stock-like business row now reflects both possible cash-flow growth and discount-rate pressure.

Replace the Rental property row's real-value wording with real-value effect and valuation depend on rent pass-through, expenses, financing, required return, and discount rates.
Add depends on both channels to the Rental property row.

The rental property row now reflects both adjustable rents and the forces that can offset them.

Before you compare the cards one last time, which result do you expect to be highest?

Switch back to Calculator from earlier.
Calculate 110 / 1.10 again.

The baseline result should show 100.

Calculate 121 / 1.15 again.

The strong pass-through result should show about 105.2.

Calculate 110 / 1.15 again.

The weak pass-through result should show about 95.7.

Your cards now show that stronger cash-flow pass-through preserves more value than unchanged cash flow under the same higher discount rate.

That's your inflation valuation framework complete. Every asset now connects to purchasing power plus both valuation channels.

Secret mission

Diagnose an Inflation Surprise

Inflation arrives above expectations while market rates rise. Trace the shock across four assets. Then rank their exposure without a supplied answer.

Clean Up Your Resources

This project creates no ongoing costs. Decide whether to keep using your paper framework, store it for later, or discard the handwritten work.

Resources you used:

Handwritten Four-Asset Scorecard with the revised ranking.
Handwritten Inflation Transmission Map with the Bond Seesaw.
Fresh quarter-page Inflation Surprise Diagnosis with the conditional asset ranking.
Open Calculator app on Mac session in Basic view.

Keep everything running

No action needed. Choose this if you want to reuse the framework when inflation expectations change.

Keep the Four-Asset Scorecard beside the Inflation Transmission Map.
Keep the Inflation Surprise Diagnosis with the main framework as a worked scenario.
Leave the Calculator session open if you plan to test more assumptions today.

Pause - I'll come back to this later

This option puts the exercise aside without losing your completed reasoning. Your pages stay ready for another inflation scenario.

Close the Calculator window on your Mac.
Place the Four-Asset Scorecard beside the Inflation Transmission Map.
Store the Inflation Surprise Diagnosis with the two main worksheets.

Delete - I don't want to use this again

This option removes the handwritten work created for the project. The Calculator app stays installed for normal use.

Close the Calculator window on your Mac.
Recycle the Four-Asset Scorecard worksheet.
Recycle the Inflation Transmission Map worksheet containing the Bond Seesaw.
Recycle the Inflation Surprise Diagnosis quarter-page.

Nice Work!

You did it! Your completed one-page framework explains how inflation reaches cash, bonds, stocks, and property through purchasing power, cash flows, and discount rates.

You've learned how to:

Separate nominal value from real purchasing power across cash, a fixed-rate bond, a stock-like business, and rental property.
Reprice a fixed-rate bond with present value. Explain why a higher market rate lowers the price of an existing fixed-rate bond before maturity.
Judge stocks and property through two valuation channels. Connect their outcomes to pricing power, rent pass-through, expenses, financing, and required returns.
Secret Mission: Diagnosed an unexpected-inflation shock. Ranked four assets from most directly exposed to most adaptable. Defended why the stock and property positions remain conditional.

Ready to quiz yourself?