Which of the following statements does NOT explain why the returns on bonds are found to be negatively correlated with unexpected inflation?
A) Bonds offer a stream of nominal interest and principal payments that vary with respect to the inflation rate.
B) Unexpected inflation causes inflation expectations to rise causing required returns to increase as well.
C) To provide higher returns, bond prices must fall producing principal losses for current bondholders.
D) Bonds are non-indexed, fixed income securities that will not adjust the payment stream for price changes.
Correct Answer:
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