CFA Practice Question

There are 136 practice questions for this study session.

CFA Practice Question

An investor expects that both the 3-month and 10-year inflation rates will be 2%. Which break-even inflation rate is most likely to be higher?

A. The 3-month break-even inflation rate
B. The 10-year break-even inflation rate
C. The 3-month and 10-year break-even inflation rates should be the same.
Correct Answer: B

The break-even inflation rate incorporates both the inflation expectations and the risk premium for the uncertainty of the future inflation environment. It's more difficult to predict the 10-year inflation rate than to predict the 3-month inflation rate.

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