If the Purchasing Power of Your Debt Increases Over Time

question 138

Multiple Choice

If the purchasing power of your debt increases over time:

• A) the real interest rate is positive.
• B) the nominal rate of interest is positive.
• C) the inflation rate is greater than the nominal interest rate.
• D) the real interest rate is negative.

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Definitions:

Optimal Risky Portfolio

The optimal risky portfolio is the combination of risky assets that provides the highest expected return for a given level of risk or the lowest risk for a given level of expected return.

Risk Free Rate

The theoretical rate of return of an investment with zero risk, often represented by the yield on government securities like U.S. Treasury bonds.

Standard Deviation

A statistical measure that quantifies the variation or dispersion of a set of data points.

Optimal Risky Portfolio

A portfolio that offers the highest expected return for a given level of risk or the lowest risk for a given level of expected return, according to modern portfolio theory.