With Unanticipated Inflation

question 69

Multiple Choice

With unanticipated inflation:

• A) creditors are hurt unless they have an indexed contract, because they get less than they expected in real terms.
• B) debtors with an indexed contract are hurt, because they pay more than they contracted for in nominal terms.
• C) debtors with an unindexed contract lose, because they pay exactly what they contracted for in nominal terms.
• D) creditors with indexed contracts gain, because they receive more than they contracted for in nominal terms.
• E) debtors with an indexed contract are hurt, because they pay more than they contracted for in real terms.

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Definitions:

Firm's Risk Character

The inherent risk profile of a company, based on its operations, industry sector, financial position, and other factors, affecting its return and stock valuation.

Financial Results

A summary of a company's performance over a specific period, including income, expenses, profit, and loss.

Risk

The exposure to potential financial loss or gain, often measured by the variability of returns associated with a given asset or investment.

Monte Carlo Simulation

A statistical technique that uses random sampling and variability to calculate results for complex problems or models.