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Meaning / Definition of

Inflation-adjusted Principal

Categories: Bonds and Treasuries,

The net worth of a principal amount used to buy inflation-adjusted securities, taking into account any inflation that takes place till the maturity date. The new value of the principal is derived by multiplying the original principal amount by the inflation index ratio.P(adj) = P(ori) x ( CPI(cur) / CPI(ref) )Where, P(adj) = the net worth of the principal value after inflation adjustment; P(ori) = the original amount of principal used to buy the security ; CPI(ref) = the inflation level at the time the bond is first issued (usually taken from 3 months before the bond is issued) ; CPI(cur) = the inflation level at the current period of the bond maturityFor example, an investor buys a $2,000 Treasury inflation-adjusted bond in June. The CPI reference rate is taken from March's CPI (three months earlier), which is, for example, 100. Six months later, inflation has risen 1% and the current CPI is now 101. This will yield an inflation index ratio of 101/100, or 1.01. At the end of six months, the bond's adjusted principal is now worth $2,020, or 2,000 x 1.01.

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Definition / Meaning of

Gross Margin

Categories: Accounting, Fundamental Analysis, Operation and Production,

Gross margin, sometimes called gross profit, is the percentage by which profits exceed production costs. To find gross margin you divide sales minus production costs by sales. For example, if you want to calculate your gross margin on selling handmade scarves, you need to know how much you spent creating the scarves, and what you collected by selling them.If you sold 10 scarves at $15 a piece, and spent $8 per scarf to make them, your gross margin would be 46.7%, or $150 in sales minus $80 in production costs divided by $150. Gross margin is not the same as gross profit, which is simply sales minus costs. In this example, it's $70, or $150 minus $80. If you're doing research on a company you're considering as an investment, you can look at the gross margin to help you see how efficiently it uses its resources. If the company has a higher gross margin than its competition, it can command higher prices or spends less on production. That might mean it can allocate more resources to developing new products or pursuing other projects.

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