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How does inflation affect saving and investing?
During periods of high inflation, investors generally try to preserve purchasing power by seeking returns that keep up with inflation. Equity (stock) markets generally perform poorly in periods of high inflation with the exception of stocks of companies that benefit from inflation (like commodity companies). The Dow Jones Industrials average was basically flat in the 1970's when inflation was high. Yields on fixed income securities (govt bonds and corporate bonds) usually rise with the corresponding increase in inflation since fixed income investors need a premium over the rate of inflation for a 'real' rate of return. For example, a bond investor that requires a 5% return in a 3% inflation environment will require 7% in a 5% inflation environment. The Investopedia link below has a basic article on this topic.
Why can the goals of a dual mandate sometimes conflict?
The goals of a dual mandate can sometimes conflict because they may require different actions or decisions to achieve each goal. For example, if one goal is to promote economic growth and the other is to control inflation, policies that stimulate growth may lead to higher inflation, creating a conflict between the two goals.
What is likely to happen to yield to maturity on bonds in the marketplace if inflationary expectations increase?
The prices of bonds will fall and yields to maturity (or call date) will rise, since investors will require greater yields on their investments to offset the expected increase in inflation.
What is the difference between discount rate and coupon rate?
For this answer we have to know the six categories of premioum:a. Inflation premium(more risk): high inflation means tha investors will require a higher return in order to invest at a certain project.b. Maturity premium: the longer the duration of a project, the higher the return that investors will require.c. Liquidity premium: the excess return that investors will require in order to invest their capital in a less desirable project on a secondary market.d. Exchange rate risk premium: the excess return that investors will require in order to invest their capital in a foreign financial assets that has volatile exchange rate.e. default risk premium: .... in order to invest in a more (??) project to default companyf. Real rate of interests
Is belly inflation a sin?
Oh honey, sin is a whole other ball game. Belly inflation is just a kink some folks enjoy, nothing sinful about it unless you're doing it in church or something. Just remember, as long as it's consensual and safe, you do you, boo.
