Mark, a 60-year-old retiree, is highly risk-averse. He relies entirely on his investment portfolio for income. His current portfolio consists of 80% Canadian government bonds and 20% blue-chip Canadian dividend stocks. Which of the following statements best describes the primary risk Mark is exposed to?

Question: Mark, a 60-year-old retiree, is highly risk-averse. He relies entirely on his investment portfolio for income. His current portfolio consists of 80% Canadian government bonds and 20% blue-chip Canadian dividend stocks. Which of the following statements best describes the primary risk Mark is exposed to?

Answer options:

• Unsystematic risk due to over-concentration in a single industry. ✅ Inflation risk, as his fixed income investments may not keep pace with rising costs.
• Higher volatility due to significant exposure to international markets.
• Liquidity risk, as government bonds are difficult to sell quickly without a loss.

Correct answer: Inflation risk, as his fixed income investments may not keep pace with rising costs.

Explanation: Mark's portfolio, heavily weighted towards fixed-income, is particularly vulnerable to inflation. If the purchasing power of his fixed income doesn't keep pace with the cost of living, his real returns will diminish, impacting his ability to maintain his lifestyle.