Question

The inflation premium: Question 4 options: should be an average of the inflation rate experienced in the past. should be an average of the inflation rate expected over the life of the security. is required for assets that cannot be converted into cash on short notice at a reasonable price. reflects interest rate risk.

Answer 1

The correct answer is letter "B": should be an average of the inflation rate expected over the life of the security.

Step-by-step explanation:

The Inflation premium (IP) is a premium that represents the projected inflation investors must add to the real risk-free rate of return until the date of maturity. IP has an impact on interest rates because it affects the real value of what investors receive from their venture.

Answer 2

The answer is should be an average of the inflation rate expected over the life of the security.

Step-by-step explanation:

The inflation premium is a portion of the interest rate that compensates the investor for the expected increase in prices over time