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.
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?
Choose wisely. There is only one correct answer.
3.92 percent.
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.
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.
4.
Inflation occurs when the general price level falls from one period to the next.
Choose wisely. There is only one correct answer.
False. Inflation occurs when the general price level rises from one period to the next.
5.
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.
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