Capital MarketsQuestion 356 of 398
An investor is concerned that rising inflation will erode the purchasing power of a bond's fixed interest payments. This concern is known as:
a.Credit risk
b.Purchasing-power (inflation) risk
c.Liquidity risk
d.Reinvestment risk
Explanation
Purchasing-power risk, also called inflation risk, is the danger that rising prices will reduce the real value of a fixed stream of income, such as a bond's coupon payments. It is a particular concern for long-term, fixed-rate securities.
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