CFA Practice Question

There are 119 practice questions for this study session.

CFA Practice Question

Here is the macroeconomic 2-factor model for an asset:
R = a - 4.2Finfl + 5FGDP + ε

Which of the following is MOST LIKELY this asset?
A. government bonds
B. equity
C. real estate
Explanation: Real estate is in the high inflation and high growth category.

User Contributed Comments 6

User Comment
alejandroc But the return is negatively linked to inflation! Equity is in the high growth, no inflation category!
didi you should look at the absolute number here. The higher the inflation, the more sensitive of the return of real estate to the inflation. Check the matrix in the textbook.
janis36 I don't get it. So if we have a positive inflation surprise, return on the RE will decrease?
I picked "equity" as an answer.
jimmyvo R = risk premium/required return. Real estate is considered to be inflation hedge. So when there's unexpected high inflation, real estate value will arguably increase, BUT the 'required return' of real estate will be less. In a normal 2-factor model, inflation is normally positive and GDP is 'negative.' GDP is normally negative because if growth is due to GDP, and not because of active selection, the required return will be less.
jimmyvo I need to edit my grammar but there's no edit button. lol
Baumisa Just trying to decipher jimmyvo
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