Question

the bonus brought by the inflation to the borrowers is known as???
a) inflation spiral
b) inflation premium
c) inflationary gap
d) inflation accounting

with reason
answer fast plzz.......​

Answer 1

Explanation:

Right Answer is: Inflation Premium

SOLUTION

The bonus brought by the inflation to the borrowers is known as Inflation Premium.

• An inflation premium is the part of prevailing interest rates those results from lenders compensating for expected inflation by pushing nominal interest rates to higher levels.

• Rising inflation premium shows depleting profits of the lending institutions. At times, to neutralize the effects of inflation premium, the lender takes the resource to increase the nominal rate of interest.

• It can be estimated as the difference between the yield on Treasury inflation-protected securities (TIPS) and Treasury bonds of the same maturity.

• Inflation Premium = YieldTB - YieldIP; where YieldTB is the yield on a Treasury bond and YieldIP is the yield on Treasury inflation-protected security of the same coupon rate, redemption value, maturity, etc.