Future Business Leaders of America (FBLA) Securities and Investments Practice Test

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Study for the FBLA Securities and Investments Test. Enhance your financial expertise with well-crafted questions, hints, and detailed explanations. Get exam-ready today!

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What does an I-bond protect against?

Credit risk
Interest rate risk
Inflation risk
Reinvestment risk

The correct answer is: Inflation risk

An I-bond, or Series I Savings Bond, is specifically designed to help protect against inflation risk. This type of bond has a unique feature that combines a fixed interest rate with an inflation-adjusted rate, which means that as inflation rises, the bond’s interest rate increases accordingly. This protects the purchasing power of the investment, ensuring that the returns keep pace with inflation. For investors concerned about the erosion of savings due to rising prices, I-bonds provide a safe and effective way to maintain value over time. The inflation component of I-bonds is recalibrated every six months, allowing these bonds to adapt to changing economic conditions, which is crucial for long-term investors. By choosing I-bonds, investors can safeguard their investment's real value as inflation fluctuates, a key aspect of financial planning in inflationary environments.