Consider a Nation in Which the Price Index Was 150

question 164

Multiple Choice

Consider a nation in which the price index was 150 last year and this year it is 130.Which statement is correct?

• A) Inflation was 20 percent this year.
• B) Deflation was 20 percent this year.
• C) Housing prices must have fallen.
• D) Inflation was 13.33 percent this year.
• E) Deflation was 13.33 percent this year.

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Definitions:

Constant Rate

A fixed rate that does not change over the specified period of time.

Expected Return

The average of a probability distribution of all possible returns that an investment might generate.

Dividend Yield

A financial metric indicating the annual dividend payment of a company as a proportion of its share price.

Constant Growth

A model, often referred to as the Gordon Growth Model, that assumes a firm's dividends grow at a consistent rate indefinitely, used to evaluate the fair value of a stock.