Fixed-income securities incur an additional risk related to inflation known as ____ risk.

Question

Quizplus · Accepted Answer

Purchasing-power risk, also known as inflation risk, is the risk that the purchasing power of a fixed income security's future cash flows will be eroded by inflation. This risk is particularly relevant for long-term bonds, as the effects of inflation can accumulate over time and reduce the relative value of future cash flows. Interest-rate risk and reinvestment risk are also important risks associated with fixed income securities, but they do not specifically relate to the impact of inflation on future cash flows. Exchange-rate risk is not directly relevant to fixed income securities denominated in a single currency.

Fixed-Income Securities Incur an Additional Risk Related to Inflation Known