The correct answer is: A. inflation.
A return relative is a measure of the performance of an investment relative to a benchmark. It is calculated by dividing the investment’s return by the benchmark’s return. A return relative of 1 indicates that the investment has performed the same as the benchmark. A return relative of greater than 1 indicates that the investment has outperformed the benchmark, and a return relative of less than 1 indicates that the investment has underperformed the benchmark.
Inflation is a general increase in prices and a decrease in the purchasing value of money. When inflation is high, it can erode the returns on investments. A return relative can help to mitigate the effects of inflation by measuring the performance of an investment relative to a benchmark that is adjusted for inflation.
The other options are incorrect because:
- Negative returns are possible for any investment, regardless of whether it is relative to a benchmark.
- Interest rates are a factor that can affect the returns on investments, but they are not the only factor.
- Tax differences can affect the returns on investments, but they are not the only factor.