" …he considers equally weighted positions in Chilean Real Estate, Swiss bonds, and US equities, among others. He reviews the forecast of inflation for these three countries and notes that inflation is predicted to be above expected levels in Chile but below expectations in the US and Switzerland. "
Then they ask if we should underweight Chile, Swiss or US. I picked US because the other two did not make sense. I justified as saying that if inflation is expected to be low then perhaps the economy is not functioning as well as expected. No pressure on price increases do to lack of economic activity. The answer says Swiss because lower inflation expectations have a neutral effect on bonds. Why neurtral? IF inflation is lower than the inflation premium originally built into the bond then its price should increase, no? What am I missing here.