SIE Exam Question 282: Answer and Explanation

Question: 282

Which of the following is the best hedge against inflation?

• A. Treasury bonds
• B. Preferred stock
• C. Common stock
• D. Municipal bonds

Correct Answer: C

Explanation:

C: Common stock tends to outpace inflation (prices of goods and services rising), therefore investments in common stock can be used as a hedge (protection) against inflation. Fixed income investments (like preferred stock and bonds) are very susceptible to inflation and lose value when inflation rates rise.