The realized rate of return may be negative if A) investors' expected rate of inflation (P_e) was less than actual inflation (P_a). B) investors' expected rate of inflation (P_e) was greater than actual inflation (P_a). C) investors over-anticipated the level of inflation. D) investors expected more inflation than was realized.

Question

Quizplus · Accepted Answer

If the actual inflation is higher than expected, the purchasing power of the returns is eroded more than anticipated, potentially leading to a negative realized rate of return.

The Realized Rate of Return May Be Negative If