A Decrease in the Expected Rate of Inflation Will ________

question 44

Multiple Choice

A decrease in the expected rate of inflation will ________ the expected return on bonds relative to that on ________ assets.

• A) reduce; financial
• B) reduce; real
• C) raise; financial
• D) raise; real

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Definitions:

Beta

A measure of a stock's volatility in relation to the overall market, indicating how much the stock price is expected to fluctuate.

Arbitrage Pricing Theory

A financial model that determines the theoretical return of an asset by considering multiple macro-economic factors or theoretical market indices.

Systematic Risk Factors

External risks that affect an entire market or asset class, and cannot be mitigated through diversification.

CAPM

Capital Asset Pricing Model; a model that describes the relationship between risk and expected return and that is used in the pricing of risky securities.