Q:
Which of the following would endure the most negative impact based on rising inflation:
a) 'AAA' Bonds
b) Blue Chip Stocks
c) Real Estate
d) Gold
A:
The correct answer is a).
Bonds show a far greater degree of vulnerability during inflationary times than do the other choices, which, historically, have fared well when the cost of goods and services has increased. Bondholders incur rising interest rates, which drive down the value of their investments. Furthermore, the interest paid on bonds also loses purchasing power during times of inflation.

RELATED FAQS

  1. What are the benefits of government bonds?

    <p>Its true for the fact that it is one of the safest instruments to invest, but do you really get the rate of return over ...
  2. What are the risks of investing in a bond?

    The most well-known risk in the bond market is interest rate risk - the risk that bond prices will fall as interest rates ...
  3. Do long-term bonds have a greater interest rate risk than short-term bonds?

    The answer to this question lies in the fixed income nature of bonds and debentures, often referred to together simply as ...
  4. How does a bull market in stocks affect the bond market?

    Take a deeper look at the relationship between the bond market and equities, and see what might happen to bonds during the ...
  5. What determines the price of a bond in the open market?

    Learn more about some of the factors that influence the valuation of bonds on the open market, and why bond prices and yields ...
  6. What types of investors are susceptible to interest rate risk?

    Learn how bondholders are more susceptible to interest rate risk than equity investors because of the direct correlation ...
RELATED TERMS
  1. Inflationary Psychology

    A state of mind that leads consumers to spend more quickly in ...
  2. Inflationary Risk

    The uncertainty over the future real value (after inflation) ...
  3. Bond

    A debt investment in which an investor loans money to an entity ...
  4. Bondholder

    The owner of a government or corporate bond. Being a bondholder ...
  5. Bond Resolution

    1. A document used with government bonds, especially general ...
  6. American Callable Bond

    A bond that can be redeemed by the issuer at any time prior to ...
Hot Definitions
  1. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  2. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  3. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  4. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  5. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  6. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
Trading Center