An average inflation rate which is expected over life of security is classified as__________?
Correct answer: A. Inflation premium
- A. Inflation premium
- B. Off season premium
- C. Nominal premium
- D. Required premium
Explanation
The inflation premium compensates investors for the average inflation expected during the security’s life, since inflation reduces the purchasing power of future cash flows. It forms part of the nominal interest rate.
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Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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