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

Test your knowledge

Choose wisely. There is only one correct answer to each question.

0%
Keep studying!
Review your answers below to learn more.
1.
One measure of inflation in the United States is the Consumer Price Index.
Choose wisely. There is only one correct answer.
True. The Consumer Price Index measures inflation.
2.
Real returns on stocks tend to decrease when inflation increases.
Choose wisely. There is only one correct answer.
True. Evidence has shown that inflation causes a decrease in the real return on stock investments.
3.
High inflation results in lower nominal returns for fixed-income investors.
Choose wisely. There is only one correct answer.
False. Nominal returns are not affected by inflation. However, high inflation will result in lower real returns for fixed-income investors.
4.
Which of the following is not an effective hedge against inflation?
Choose wisely. There is only one correct answer.
Fixed-rate bonds. These are not an effective hedge against inflation. When inflation rises, the nominal rate of return on fixed-rate bonds stays the same. This means that the real rate of return on fixed-rate bonds decreases.
5.
An annuity or bond whose interest rate is linked to the Consumer Price Index is considered a perfect hedge against inflation.
Choose wisely. There is only one correct answer.
True. Interest rates that are linked to the Consumer Price Index will increase at a proportional rate to inflation, making index-linked investments a perfect hedge.
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