Question #23
Reading: Reading 39 Economics and Investment Markets
PDF File: Reading 39 Economics and Investment Markets.pdf
Page: 8
Status: Correct
Correct Answer: B
Question
Break-even inflation rate is most appropriately described as the:
Answer Choices:
A. The difference in yields between long-dated and short-dated government bonds
B. The difference between market’s expectation of the inflation rate and the risk premium for inflation uncertainty
C. The difference in yields of non-inflation indexed and inflation indexed risk-free bonds
Explanation
Break-even inflation is the difference in nominal and real risk-free rates. It comprises
premium for inflation and the risk premium for uncertainty in inflation.