Products & Their RisksQuestion 50 of 398
An investor holding fixed-rate bonds during a period of rising inflation is MOST concerned about:
a.Liquidity risk
b.Purchasing-power (inflation) risk
c.Legislative risk
d.Business risk
Explanation
Purchasing-power or inflation risk is the danger that rising prices will erode the real value of a bond's fixed interest and principal payments. Liquidity, legislative, and business risks describe unrelated concerns about selling, law changes, and company operations.
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