If the expected rate of inflation was 3% and the actual rate was 6.2%; the systematic response coefficient from inflation,β_I,would result in a change in any security return of: A) 9.2%. B) 3.2 β_I%. C) -3.2 β_I%. D) 3.0%. E) 6.2 β_I%.

Question

Quizplus · Accepted Answer

The formula to calculate the change in security return in response to unexpected inflation is: β_I × (actual inflation rate - expected inflation rate) Substituting the given values, we get: β_I × (6.2% - 3%) = 0.032 β_I or 3.2 β_I% Therefore, the change in security return would be 3.2 β_I%. Option B is the correct answer.

If the Expected Rate of Inflation Was 3% and the Actual