An increase in inflation will cause a bond's required return to rise.

Name: An increase in inflation will cause a bond's required return to rise.
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Question

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When there is an increase in inflation, the purchasing power of the money invested in a bond decreases. To compensate for this loss in purchasing power, bond investors require a higher return on their investment, causing the bond's required return to rise.

An Increase in Inflation Will Cause a Bond's Required Return