book value "wedge"

CFA Level I
#1
  1. what is the inflation/book value wedge? not making this up, i saw it in Volume 5 and dont know what the hell they are saying anyone?
#2

it simply means that as inflation increases the difference between book value and replacement cost or FV increases. so in inlfationary environment, that is a weakness of valution measure based on bv as it appears cheaper.

#3

madanalyst Wrote: ------------------------------------------------------- > it simply means that as inflation increases the > difference between book value and replacement cost > or FV increases. > > so in inlfationary environment, that is a weakness > of valution measure based on bv as it appears > cheaper. thanks! sorry, i missed that one