Nazim also recently bought bonds with a clause stating that interest will be paid based on the inflation rate. when the inflation rate increases, the interest on the bond will also increase. nazim has invested in
In general, there are two different types of values related to inflation: one that has been adjusted for inflation and one that has not. The real value has been adjusted for inflation, whereas, the nominal value has not. Comparing the two values allows analysts to understand the true impact of inflation on the price of goods and services.
Hope this helps to understand on your own.
1). Answer :- Option b). He has reinvestment options with higher yields.
2). Answer :- Nazim has invested in purchasing power bonds / Indexed bonds.
He has reinvestment options with higher yields
Nazim is likely to put the bonds when he is in need of money and as such will go for a reinvestment option having a higher yield. Also, if Nazim recently bought bonds with a clause stating that interest will be paid based on the inflation rate, then Nazim has invested in income bonds, because income bond interest rate is dependent on inflation rate; as inflation rate increases, interest on the bond also increases.