- CFA Exams
- CFA Exam: Level I 2021
- Study Session 2. Quantitative Methods (1)
- Reading 6. The Time Value of Money
- Subject 1. The Time Value of Money and Interest Rates

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**CFA Practice Question**

If other factors are equal, a decrease in the expected rate of inflation will most likely result in a decrease in ______.

B. the nominal risk-free rate

C. both real and nominal risk-free rates

A. the real risk-free rate

B. the nominal risk-free rate

C. both real and nominal risk-free rates

Correct Answer: B

The nominal risk-free rate of return includes both the real risk-free rate of return and the expected rate of inflation. A decrease in expected inflation rate would decrease the nominal risk-free rate of return, but would have no effect on the real risk-free rate of return.

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**User Contributed Comments**
5

User |
Comment |
---|---|

Stacerz02 |
Makes sense |

wsiyer |
yes! |

thebkr777 |
Nominal = Real rfr + expected r |

ashish100 |
coolio |

ashish100 |
Wait no Nominal rfr = real rfr + expected inflation boiiii lets get it |