Assume your only financial goal is to keep pace with inflation - which is assume

Question

Assume your only financial goal is to keep pace with inflation - which is assumed to remain constant at 3%. Which of the following investments would be acceptable:

a money market fund returning 1.5%

stock in a gold mine expected to return more than 75%

a savings account at ING, Direct that pays 2% annually

all of the above would be acceptable assuming all will preserve your initial investment

a money market fund returning 1.5%

stock in a gold mine expected to return more than 75%

a savings account at ING, Direct that pays 2% annually

all of the above would be acceptable assuming all will preserve your initial investment

Explanation / Answer

Option B is correct.

All other options have interest rate lower than inflation rate, therefore, it will reduce the value of portfolio and it will not be able to remain constant at 3%. Only Gold mine has rate of return higher than inflation rate.

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