Answer: real return.

## Explanation **Real return** is the most appropriate measure for assessing the increase in purchasing power of a portfolio's value over time because: 1. **Purchasing Power Adjustment**: Real return adjusts nominal returns for inflation, which directly measures how much more goods and services the portfolio can purchase after accounting for price level changes. 2. **Comparison with Other Measures**: - **Holding Period Return (Option A)**: This is a nominal return that doesn't account for inflation. It shows the total return over a period but doesn't reflect changes in purchasing power. - **After-tax Return (Option B)**: This accounts for taxes but not inflation. While important for net returns to the investor, it doesn't measure purchasing power changes. 3. **Formula**: Real return is calculated as: \[\text{Real Return} = \frac{1 + \text{Nominal Return}}{1 + \text{Inflation Rate}} - 1\] Or approximately: \[\text{Real Return} \approx \text{Nominal Return} - \text{Inflation Rate}\] 4. **Investment Decision Making**: Investors should focus on real returns when evaluating long-term investment performance because what matters ultimately is the increase in purchasing power, not just nominal dollar amounts. **Example**: If a portfolio earns 8% nominal return and inflation is 3%, the real return is approximately 5% (8% - 3%), meaning the portfolio's purchasing power increased by about 5%. **Reference**: Module 1.3, LOS 1.e - This learning outcome covers different return measures and their appropriate applications in portfolio management.

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