Purchasing power risk, also known as inflation risk, occurs when inflation reduces the real value of a fixed-income stream. Fixed payments (e.g., bond interest or annuity payments) lose buying power as inflation rises.
D is correctbecause inflation directly affects fixed income by eroding purchasing power.
Ais incorrect because market risk relates to fluctuations in market prices, not inflation.
Bis incorrect because economic risk generally refers to broader economic downturns.
Cis incorrect because interest rate risk involves changes in bond prices due to interest rate movements, not inflation.
[Reference:SIE Study Guide, Chapter 3: Risks of Fixed-Income Investments, ]
