Tax & EvaluationQuestion 105 of 110
A retiree holds only long-term certificates of deposit and a money market fund. The greatest risk to this portfolio over a 25-year retirement is:
a.Purchasing power risk, because returns may not keep pace with inflation
b.Credit risk on federally insured deposits
c.Currency risk from foreign exchange movements
d.Prepayment risk on the money market fund
Explanation
Very low-volatility instruments protect principal but historically deliver little real return, so inflation erodes the portfolio's buying power over a long retirement. Insured deposits carry minimal credit risk, and a domestic portfolio has no meaningful currency exposure. Prepayment risk applies to mortgage-backed securities rather than to money market funds generally.
Practice all 110 questions free — no signup required.
Related questions on this topic
- A variable annuity purchased inside a Traditional IRA with fully deductible contributions is distributed at age 65. The distribution is:
- An investor dies owning fund shares purchased for $20,000 that are worth $50,000 on the date of death. The heir's cost basis is generally:
- A donor wants to make a large lump-sum contribution to a 529 plan without using lifetime gift tax exemption. Which feature helps?
- Which type of risk cannot be reduced by holding a widely diversified equity mutual fund?
- The dominant risk in a high-yield corporate bond fund compared with a Treasury fund is:
- Interest rates rise sharply. Which fund would most likely experience the largest price decline?
Last reviewed: · editorial process
PrepPass Editorial Team · Verified against FINRA Series 6 — Investment Company & Variable Contracts Rep · How we review