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1.
Hedging is the practice of reducing risk by investing in risk-free assets.
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.
2.
Real returns on stocks tend to decrease when inflation increases.
True. Evidence has shown that inflation causes a decrease in the real return on stock investments.
3.
What is the approximate real rate of return on a one-year bond that has a nominal rate of 6 percent while inflation was 2 percent during that year?
3.92 percent.
4.
Inflation occurs when the general price level falls from one period to the next.
False. Inflation occurs when the general price level rises from one period to the next.
5.
One measure of inflation in the United States is the Consumer Price Index.
True. The Consumer Price Index measures inflation.