The Stock Market

Understanding Linkage to the CPI

A deeper understanding of linkage to the CPI:

When a creditor links a loan to the CPI, he is assuring that the money repaid will allow him to buy an equivalent number of baskets for the money he loaned.

For example: In January, Mark gave Nate a $10,000 loan with no interest for four months. At that time, he could have purchased four baskets for $10,000 (In January, a basket cost $2,500).

Mark wants to receive enough money in May to enable him to buy four baskets. In May, four baskets cost $10,800.

Understanding Linkage to the CPI533Understanding Linkage to the CPI