CFA Practice Question

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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 ______.

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.

User Contributed Comments 6

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
zeanww Let's goooo
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