CFA Level I · CFA Level I Exam · Real Estate and Infrastructure
Which of the following is the most likely reason infrastructure assets are often viewed as an inflation hedge?
Infrastructure is viewed as an inflation hedge mainly because revenues are often linked to inflation through contract terms or regulatory tariff adjustments. This lets cash flows rise with price levels. Construction costs do not fall with inflation, and infrastructure debt typically has long rather than short maturities.
- ARevenues are frequently linked to inflation through contracts or regulationCorrect
- BConstruction costs fall as general price levels rise
- CDebt financing is usually at fixed rates with short maturities
Explanation
Many infrastructure assets have tariffs or concession fees indexed to inflation by contract or regulation, so revenues rise with prices. Construction costs generally rise with inflation, and long-lived assets usually use long-maturity financing.
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