Present value nflation Nominal amounts are valued according to the level of prices in the year the return occurs Real amounts are valued according to the level of prices in one particular year Inflation affects both the payout stream and the discount factor and these two cancel each other out11 Present Value: Inflation • Nominal amounts are valued according to the level of prices in the year the return occurs. • Real amounts are valued according to the level of prices in one particular year. • Inflation affects both the payout stream, and the discount factor, and these two cancel each other out