Which of the Following Statements Does NOT Explain Why the Returns

question 19

Multiple Choice

Which of the following statements does NOT explain why the returns on bonds are found to be negatively correlated with unexpected inflation?

• A) Bonds offer a stream of nominal interest and principal payments that vary with respect to the inflation rate.
• B) Unexpected inflation causes inflation expectations to rise causing required returns to increase as well.
• C) To provide higher returns, bond prices must fall producing principal losses for current bondholders.
• D) Bonds are non-indexed, fixed income securities that will not adjust the payment stream for price changes.

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Definitions:

Gross Profit Ratio

A profitability ratio calculated as gross profit divided by net sales, indicating the percentage of sales revenue that exceeds the cost of goods sold.

Average Cost

A method for inventory valuation that calculates the cost of goods sold and ending inventory based on the average cost of all items purchased.

Retail Inventory Method

An accounting process used by retailers to estimate inventory value by converting the retail value of inventory to a cost basis, based on the relationship between cost and retail price.

Ending Inventory

The value of goods available for sale at the end of an accounting period.