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Basics (Saving and Investing) Intermediate: Effects of Inflation on Investments

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1.
High inflation results in lower nominal returns for fixed-income investors.
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False. Nominal returns are not affected by inflation. However, high inflation will result in lower real returns for fixed-income investors.
2.
To measure your gain on an investment in terms of purchasing power, you should look at its _______.
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Real interest rate. The real rate measures the return on your investments after subtracting out inflation.
3.
Hedging is the practice of reducing risk by investing in risk-free assets.
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False. Hedging is the practice of investing in assets that reduce the risk associated with other assets in your portfolio by responding to a particular stimulus in an opposite manner.
4.
Historically, stocks have provided a rate of return superior to the rate of inflation in the United States.
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True. Stock returns have historically outpaced inflation in the United States; this is one reason for their popularity.
5.
One measure of inflation in the United States is the Consumer Price Index.
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True. The Consumer Price Index measures inflation.
Introduction to Effects of Inflation on Investments What Is Inflation? The Effect of Inflation on Fixed-Income Investments The Effect of Inflation on Stocks Hedging against Inflation Summary of Effects of Inflation on Investments Find out what you learned