Investors require higher rates of return to compensate for purchasing power losses resulting from inflation.

Question

Quizplus · Accepted Answer

This is true because investors need to earn returns that are greater than the rate of inflation in order to ensure that their purchasing power is not eroded over time. If they only earn a rate of return that is equal to inflation, they will essentially be at a break-even point and will not be able to increase their wealth or maintain their current level of purchasing power. Therefore, investors typically require higher rates of return to account for inflation.

Investors Require Higher Rates of Return to Compensate for Purchasing