I got the question below in practice exams.
I think B is the answer by process of elimination, but still confused because C could be one of options because the inflation rate is expected to be almost unchanged.
Do you know which one should be the answer?
Thomas Rosenthal, CFA, allocates capital at his investment fund between equities, bonds, and real estate. Rosenthal has forecast inflation, gross domestic product, and government bond yields over the next year. His forecast is shown in the table below.
Economic Variable ----------------- Current Rate---------------Rate Next Year (Expected)
GDP -----------------------------------------3% -------------------------------- 1%
Inflation--------------------------------------3%----------------------------------2%
1y Treasury bond yield------------------5%----------------------------------7%
Based upon his economic forecast, Wimble would most likely invest in:
A. Short-term government bonds.
B. Large-cap stocks.
C. Commercial real estate.