If the Rate of Inflation in a Given Time Period

question 66

Multiple Choice

If the rate of inflation in a given time period turns out to be higher than lenders and borrowers anticipated, then the effect will be:

• A) no change in the distribution of wealth between lenders and borrowers.
• B) a net gain in purchasing power for lenders relative to borrowers.
• C) a redistribution of wealth from borrowers to lenders.
• D) a redistribution of wealth from lenders to borrowers.

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Definitions:

Common Shareholders

Individuals or entities that own shares in a corporation, giving them rights to dividends and a say in company matters through voting.

Bondholders

Individuals or institutions that hold the debt securities issued by corporations or governments, thus lending them money in exchange for periodic interest payments and the return of principal at maturity.

Stock Investment

The act of spending money to purchase shares in a company, aiming to earn dividends or sell the shares at a higher price for profit.

Strike Price

The price at which an optioned stock can be bought or sold. Also called the exercise price or striking price.