Sch book 2, LOS 16b, Pg 54
Para 4
It includes ‘the liability linked to wages that will increase with inflation will require real return bonds as a benchmark; however, the future benefits associated with those wages may or may not be inflation index so somenominal bonds may also be needed for the benchmark’
My understanding is below
Future wages will be subject to inflation hence for calculating the pv of future liability it is wages(1+inflation)
Once the above becomes accrued (accrued for past earnings) it then could be subject to inflation or not subject to future inflation.
If it is subject to inflation we will require real rate bonds, else nominal bonds.
Can someone please clarify if my understanding is incorrect.
Thank you