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 ___ β_I. A) 9.2 B) 3.2 C) -3.2 D) 3.0 E) 6.2

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Quizplus · Accepted Answer

The systematic response coefficient from inflation, β_I represents the change in any security return due to a change in inflation. Here, the expected rate of inflation was 3% and the actual rate was 6.2%, indicating an unexpected increase in inflation. Therefore, the systematic response coefficient from inflation, β_I would be positive. Using the formula: β_I = (Actual Inflation - Expected Inflation) = (6.2% - 3%) = 3.2% Hence, the change in any security return due to this unexpected increase in inflation would be 3.2 β_I.

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