NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Investment Landscape
An investor wants her savings to retain purchasing power over time. Which risk does she primarily address by choosing assets whose returns tend to exceed the rate of price rise?
The risk addressed is inflation risk. It is the chance that investment returns fall short of the rise in prices, reducing real purchasing power. Selecting assets likely to earn more than inflation protects the investor's real wealth, unlike liquidity, reinvestment or credit risk, which concern different problems.
- AInflation riskCorrect
- BLiquidity risk
- CReinvestment risk
- DCredit risk
Explanation
Inflation risk is the danger that returns fail to keep pace with rising prices, eroding purchasing power. Choosing assets expected to beat inflation addresses it. Liquidity risk concerns ease of exit, reinvestment risk concerns reinvesting proceeds at lower rates, and credit risk concerns issuer default.
Did you get it right without looking?
One question tells you little. A timed set on Investment Landscape shows your real accuracy, how long you take and where you lose marks.
More Investment Landscape questions
- Meera invested Rs 40,000 which grew to Rs 48,400 at the end of two years with annual compounding. What is the annual compounded rate of retu…
- An investor puts Rs 50,000 in a scheme and the investment grows to Rs 60,500 after exactly 2 years with no interim payouts. What is the comp…
- Ravi invested Rs 50,000 in a mutual fund scheme, which grew to Rs 58,000 after one year. Over the same year, inflation was 5%. Using the app…
- Which of the following best describes the relationship between risk and expected return across asset classes?
- An investor's nominal return on a deposit is 8% per annum and inflation is 5% per annum. Using the exact (Fisher) relationship, the real rat…
- Which statement best describes the relationship between risk and expected return across asset classes in the investment landscape?