CFA Practice Question

There are 119 practice questions for this study session.

CFA Practice Question

Which stock can be MOSTLY LIKELY used as an inflation hedge? Its inflation factor sensitivity is ______.
A. -2
B. 0
C. 2
Explanation: Normally a stock's inflation factor sensitivity is negative.

User Contributed Comments 7

User Comment
tylerheald This is unclear. Why isn't the negative sensitivity of the stock to inflation the correct hedge?
janis36 Negative sensitivity means that the expected return is negative for positive inflation.
DXR7KRK Janis exactly. Hence if you already have an exposure to inflation in the portfolio, if the inflation keeps on rising you need the negative exposure to hedge. I also think it should be -2. You're welcome to correct me though. It's why we're here.
mikhail188 I agree with jani36 and DXR7. I hope someone else can provide clarity on why C is the answer.
chau76 I thought the answer was A also.
notgs To hedge against inflation is to protect yourself from inflation.

If inflation goes up, you want your security prices to go up as well (not go down).
b25331 If you are exposed to inflation, the factor is negative. If you want to hedge, you "go long" inflation factor (i.e. 2 in this case)
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