Exams

Inflation risk, also called purchasing power risk, is the chance that the cash flows from an investment won't be worth as much in the future because of changes in purchasing power due to inflation.

HOW IT WORKS (EXAMPLE):

For example, $1,000,000 in bonds with a 10% coupon might generate enough interest payments for a retiree to live on, but with an annual 3% inflation rate, every $1,000 produced by the portfolio will only be worth $970 next year and about $940 the year after that. The rising inflation means that the interest payments have less and less purchasing power. And the principal, when it is repaid after several years, will buy substantially less than it did when the investor first purchased the bonds.

The analogy here is like this: Veeru has 20 lt of petrol and he uses 1 lt per each day and consumes it in 20 days. If he uses 1.25 lt every day, in how many days it will be consumed?
We considered 1.25 lt here because it’s 25% more than 1 lt.

The answer would be  20/1.25=16 days.

A savings vehicle is a bank account that's used to hold your savings.

The basic saving vehicles include :

Savings accounts,

Money market accounts,

Certificates of deposit, and

Stock market.

A chemical bond in which the electrons are not shared equally due to differences in the electronegativity of the atoms.

The polarity of a covalent bond is measured using its dipole moment.

 Large dipole moment = more polar

 Small dipole moment = more nonpolar.