If the Level of Inflation Is Expected to ____, There

question 66

Multiple Choice

If the level of inflation is expected to ____, there will be ____ pressure on interest rates and ____ pressure on the required rate of return on bonds.

• A)increase; upward; downward
• B)decrease; upward; downward
• C)decrease; upward; upward
• D)increase; upward; upward
• E)increase; downward; upward

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Definitions:

Yield Curve

The yield curve is a graphical representation showing the relationship between the interest rates of bonds (usually government bonds) of different maturities.

Security Market Line

A representation of the relationship between the risk of an investment and its expected return, used in the Capital Asset Pricing Model.

Expected Return

The average of all possible investment returns, each weighted by its probability of occurrence.

Standard Deviation

A measure of the amount of variation or dispersion of a set of values, used in statistics to quantify the degree of difference from the average.