Ms. Chang, 40, has a portfolio heavily weighted towards short-term fixed-income investments, as she plans to use the funds for a down payment on a house in five years. She expresses concern that the prices of goods and services seem to be rising faster than the returns she is earning on her investments. Which specific risk is most relevant to her concern about her purchasing power?

Question: Ms. Chang, 40, has a portfolio heavily weighted towards short-term fixed-income investments, as she plans to use the funds for a down payment on a house in five years. She expresses concern that the prices of goods and services seem to be rising faster than the returns she is earning on her investments. Which specific risk is most relevant to her concern about her purchasing power?

Answer options: ✅ Inflation Risk

• Interest Rate Risk
• Market Risk
• Liquidity Risk

Correct answer: Inflation Risk

Explanation: Inflation risk is the risk that the purchasing power of an investment's returns will be eroded by an increase in the general price level of goods and services. Ms. Chang's concern about rising prices relative to her returns directly addresses inflation risk.