- CFA Exams
- CFA Level I Exam
- Topic 1. Quantitative Methods
- Learning Module 1. Rates and Returns
- Subject 1. Interest Rates and Time Value of Money
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.
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 |