Consider the Following Two Statements About Inflation Betas: (I) If

question 47

Multiple Choice

Consider the following two statements about inflation betas: (i) If a company's share price return is negatively related to the risk of inflation, it has a positive
Inflation beta.
(ii) Inflation betas are either positive for all equities, or negative for all equities, since inflation is a
Systematic risk factor.

• A)(i) is correct, and (ii) is incorrect.
• B)(ii) is correct and (i) is incorrect.
• C)Both (i) and (ii) are correct.
• D)Both (i) and (ii) are incorrect.
• E)Inflation is never priced in the APT.

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Definitions:

Break-Even

The stage at which accumulated costs equal accumulated earnings, leaving no room for profit or loss.

Monthly Dollar Sales

The total value of all sales in monetary terms for a specific month.

Variable Expenses

Costs that change in proportion to the activity of a business, such as sales volume, production levels, or inventory.

Fixed Expenses

Costs that do not change with the level of production or sales activities over a short period.