Consider the following two statements about inﬂation betas: (i) If a company's share price return is negatively related to the risk of inﬂation, it has a positive
Inﬂation beta.
(ii) Inﬂation betas are either positive for all equities, or negative for all equities, since inﬂation is a
Systematic risk factor.
A)(i) is correct, and (ii) is incorrect.
B)(ii) is correct and (i) is incorrect.
C)Both (i) and (ii) are correct.
D)Both (i) and (ii) are incorrect.
E)Inﬂation is never priced in the APT.

Question

Quizplus · Accepted Answer

Statement (i) is incorrect because if a company's share price return is negatively related to inflation risk, it would have a negative inflation beta. Statement (ii) is incorrect because inflation betas can vary among equities; they are not uniformly positive or negative for all equities, even though inflation is a systematic risk factor.

Consider the Following Two Statements About Inﬂation Betas: (I) If