An increase in inflation will cause a bond’s required return to rise. True False

Question

Question

An increase in inflation will cause a bond’s required return to rise.

True

False

Answer 1

Answer #1

The statement is True.

An increase in inflation will cause a bond’s required return to rise.

Inflation erodes the return on the bond and as such investors expect a higher required return on the bond to offset the effects of inflation.

Answer 2

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