- CFA Exams
- CFA Level I Exam
- Topic 9. Portfolio Management
- Learning Module 41. Using Multifactor Models
- Subject 2. Factors and Types of Multifactor Models
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) |