Financial Planner

Answer: C - A client with an investment bond paying a coupon rate of 5 percent with inflation increased 5.5 percent is experiencing a purchasing power risk. Purchasing power risk is often called inflation risk; it arises from variations in cash flows from a security because of inflation, which reduces the purchasing power of money. The difference between the client’s 5 percent and inflation’s 5.5 percent is declined the money’s value.