Final answer:
The correct answer is B. IG bonds perform poorly during inflation but better during deflation, while non-prime real estate returns are higher during inflation and lower during deflation.
Step-by-step explanation:
In regards to how IG bonds and non-prime real estate (RE) returns behave during periods of high inflation and deflation, we can determine that the correct answer is B. IG bond: Low in inflation, high in deflation; Non-prime RE: High in inflation, low in deflation. Investment-grade (IG) bonds tend to have lower returns during high inflation because the fixed interest payments become less valuable.
During deflation, the real value of these payments increases, hence IG bonds perform better. In contrast, non-prime real estate often does well during inflationary times as properties can act as a hedge against inflation, whereas their value might decrease during deflation.