SIE practice questioneasyInflation/purchasing power risk
Which risk is most likely to erode the real value of fixed income payments from a long-term bond?
- APrepayment risk
- BInflation risk✓ Correct answer
- CLiquidity risk
- DMarket risk
Explanation
Why B — Inflation risk
Inflation risk reduces purchasing power over time, decreasing the value of future fixed payments. Prepayment and liquidity risks do not relate directly to inflation; market risk concerns overall price swings.
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