Final answer:
An annuity can mitigate the risks of mortality by providing a lifetime income stream and can also protect against the loss of purchasing power due to inflation if it includes inflation protection features.
Step-by-step explanation:
Annuities can mitigate the risks associated with mortality and purchasing power. An annuity is a financial product that provides a fixed stream of payments to an individual, typically used as a way to secure a steady income for retired individuals. Mortality risk, or the risk of outliving one's savings, is mitigated by the fact that annuities can provide payments for the lifetime of the retiree.
Moreover, purchasing power risk, which involves the erosion of the value of money due to inflation, can be addressed by specific types of annuities that include inflation protection features. However, it is important to note that not all annuities protect against purchasing power risk unless they have such provisions built into the contract.
Retirees often face a decline in purchasing power when they rely on fixed incomes, as inflation can significantly erode the value of money over time.
Annuities can offer a solution to this problem by ensuring a consistent income. Saving for old age is crucial for individuals who wish to retire comfortably, and exploring private market options such as annuities can be an essential component of retirement planning.
Therefore the correct answer is B) mortality.