Which, if any, of the following is true of the inflation premium: Multiple Choice compensates investors for expected price increases. rewards investors for accepting interest rate risk. remains constant over time. is inversely related to the time to maturity. increases the real return.

The correct answer is letter "A": compensates investors for expected price increases.

Explanation:

Inflation is the result of steady increases in prices in a market as the result of a steady increase in demand. An inflation premium is the portion of the prevailing interest rates arising from borrowers compensating for expected inflation by raising nominal interest rates to higher. Economists and investors perceive real interest rates as the nominal interest rate, minus the inflation premium. However, the inflation premium cannot be computed because it relies on expectations for the future.