SIE practice questionmediumInflation (Purchasing Power) Risk
Which investment is MOST vulnerable to inflation risk?
- AReal estate
- BTIPS (Treasury Inflation-Protected Securities)
- CLong-term, fixed-rate bonds✓ Correct answer
- DCommon stocks
Explanation
Why C — Long-term, fixed-rate bonds
Long-term, fixed-rate bonds are most vulnerable to inflation risk because their fixed coupon payments lose purchasing power as inflation rises. The longer the maturity, the greater the exposure. Common stocks (A) and real estate (B) tend to keep pace with inflation over time. TIPS (D) are specifically designed to protect against inflation through principal adjustments tied to the CPI.
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