BACHELOR OF BUSINESS ADMINISTRATION

Detailed explanation-1: -Inflationary risk is the risk that inflation will undermine an investment’s returns through a decline in purchasing power. Bond payments are most at inflationary risk because their payouts are generally based on fixed interest rates, meaning an increase in inflation diminishes their purchasing power.

Detailed explanation-2: -Inflation risk, also referred to as purchasing power risk, is the risk that inflation will undermine the real value of cash flows made from an investment. Inflation risk can be seen clearly with fixed-income investments.

Detailed explanation-3: -Inflation Risk is also known as Purchasing Power Risk.

Detailed explanation-4: -In an inflationary environment, unevenly rising prices inevitably reduce the purchasing power of some consumers, and this erosion of real income is the single biggest cost of inflation. Inflation can also distort purchasing power over time for recipients and payers of fixed interest rates.

Detailed explanation-5: -Purchasing power and interest rate risk are very closely tied together for this reason. When interest rates rise, bond market prices fall. Just like interest rate risk, the longer the maturity of a bond, the more purchasing power risk a bond has.