Understanding Products and Their Risks - Investment Risks ALL

A change to tax rates on dividends would be an example of A)legislative risk B)purchasing power risk C)liquidity risk D)currency risk

A

A luxury tax that consumers must pay that is levied on nonessential items of a certain value or more is an example of A)legislative risk B)consumer risk C)regulatory risk D)political risk

A

All of the following are examples of legislative risk EXCEPT A)an environmental regulation enacted to require certain precautions be taken B)changes made to the tax code regarding income tax C)a law that would either allow or eliminate a tax deduction D)a luxury tax imposed on high-priced amenities such as automobiles or yachts

A

All of the following are nonsystematic risks EXCEPT A)purchasing power risk B)business risk C)capital risk D)call risk

A

An investor owns a bond purchased several years ago yielding 3%, which at the time was considered a fair return. However, these fixed 3% interest payments have not kept up with the inflation rate. This situation presents the investor with A)purchasing power risk B)financial risk C)currency risk D)liquidity risk

A

By virtue of a stocks listing for trading on a U.S. stock exchange, which of the following risks is reduced or even recognized as eliminated? A)Liquidity risk B)Equity risk C)Price risk D)Market risk

A

Examples of investments in assets that would be considered illiquid would be all of the following EXCEPT A)common stock B)classic automobiles C)works of art D)real estate

A

For investors, changes made to the tax code by the IRS are known as a form of A)legislative risk B)political risk C)financial risk D)regulatory risk

A

Holding a callable bond with call protection is least impactful for the investor when A)interest rates are rising B)interest rates are nonvolatile C)interest rates are falling D)interest rates are stable

A

If the stock market were to fall substantially in a single day, a portfolio consisting primarily of common and preferred stock would be most subject to A)market risk B)reinvestment risk C)inflation risk D)regulatory risk

A

Regarding investment risks, which of the following is TRUE? A)Safer investments tend to offer lower yields. B)Lower yields should be expected when assuming more risk. C)Higher yields should be expected when assuming less risk. D)Safer investments come with higher yields.

A

Some bonds have a feature that prohibits them from being called by the issuer before a certain date. This is known as A)call protection B)capital risk C)interest-rate exposure D)financial risk

A

Sovereign risk is the risk A)that a country will default on its commercial debt obligations B)of losing all one's investment due to a change in tax laws C)that a dollar earned today will not be able to purchase the same goods or services it can now in the future D)that interest rates decline in several countries simultaneously

A

The ability to take the proceeds from the redemption of one security or investment and allocate those proceeds in such a way so as to maintain the same level of return is expressed in which of the following concepts? A)Reinvestment risk B)Market risk C)Interest-rate risk D)Purchasing power risk

A

An investor holds shares of a manufacturing company where disposal of the by-products produced during the manufacturing process is necessary. The Environmental Protection Agency (EPA) updates the rules applicable to disposing of the product. For the investor, these changes present a form of A)political risk B)regulatory risk C)liquidity risk D)financial risk

B

Call risk is most closely associated with A)market risk B)reinvestment risk C)currency risk D)financial risk

B

Interest-rate risk A)occurs when interest rates fall, pushing bond prices lower B)cannot be reduced by diversification C)occurs when interest rates rise, pushing bond prices higher D)is often called purchasing power risk

B

The effect of continually rising retail prices on the investment returns of one's portfolio is best described as A)business risk B)inflation risk C)call risk D)reinvestment risk

B

The risk that all or a significant portion of the sum invested might be lost is known as A)call risk B)capital risk C)purchasing power risk D)market risk

B

There are several types of investment risks that will generally fall into 2 categories. These categories are known as A)investment and investor B)systematic and nonsystematic C)averse and nonaverse D)high return and low return

B

Which of the following are considered systematic risks—those that would impact all businesses? I.Market risk II.Inflation risk III.Regulatory risk IV.Business risk A)II and III B)I and II C)I and IV D)III and IV

B

A company that is extensively overleveraged using debt financing whenever available would be exposing its investors to A)call risk B)business risk C)financial risk D)liquidity risk

C

All investors and investments are different. Recognizing this, it is TRUE that A)all investments can be deemed suitable for every investor B)most investments are not deemed suitable for any investor C)no investment should be deemed suitable for every investor D)some investments can be suitable for all investors

C

An investor chooses to have a portfolio made up of domestically listed U.S. securities only. In so doing, this investor is primarily avoiding which of the following 2 risks? A)Inflation and interest rate B)Market and purchasing power C)Political and currency D)Call and reinvestment

C

An investor holding a 4.5% callable bond has it called away by the issuer when interest rates fall to 3.5%. This is an example of A)market risk, which can lead to interest-rate risk B)interest-rate risk, which can lead to financial risk C)call risk, which can lead to reinvestment risk D)business risk, which can lead to financial risk

C

An investor who relies heavily on fixed interest payments from long-term (25-30 years) bonds should be most concerned with A)legislative risk B)reinvestment risk C)inflation risk D)financial risk

C

Inflation risk is most closely associated with A)nonsystematic risk B)interest-rate risk C)purchasing power risk D)call risk

C

Purchased 15 years ago with a coupon of 6.25%, a corporate bond in an investor's portfolio has matured. With interest rates now substantially lower at 2.75%, this investor, having no immediate need for the proceeds, is now exposed to A)financial risk B)call risk C)reinvestment risk D)interest-rate risk

C

The Federal Reserve Bank is raising interest rates, this will A)push bond prices higher in the open market B)have no impact on bond prices in the open market C)push bond prices lower in the open market D)make bonds trading in the open market more desirable

C

The risk that an investor might not be able to sell an investment quickly and at a fair market price is known as A)inflation or purchasing power risk B)financial or default risk C)liquidity or marketability risk D)call or reinvestment risk

C

Which of the following statements regarding systematic risk as it relates to an investment portfolio is TRUE? A)Diversification ensures that portfolios are not subject to it. B)Diversification cannot mitigate it to any extent. C)Diversification will not eliminate it. D)Diversification can be used to eliminate it completely.

C

A company is about to introduce a new product. While confident in the product's appeal and market, it is still an unknown factor until sales results are viewed later. Investors holding stock in the company are at this time specifically exposed to A)financial risk B)reinvestment risk C)call risk D)business risk

D

An investor has a bond maturing during a time when interest rates are falling. It is likely that the investor, wanting to keep the funds invested, would be most concerned with A)business risk B)purchasing power risk C)inflation risk D)reinvestment risk

D

An investor in the United States is purchasing a security traded on a foreign securities exchange. The transaction on the exchange is priced in euros. The circumstances of this purchase and subsequent sale of the security exposes the investor to A)financial risk B)business risk C)liquidity risk D)currency risk

D

For investors, instability within an emerging economy is generally recognized as A)regulatory risk B)currency risk C)business risk D)political risk

D

Investors face many different risks. Which of the following would be factors of systematic risk? I.War II.Global security threats III.Call risk IV.Interest rate fluctuation A)II and IV B)III and IV C)II and III D)I and II

D

Of the following, reinvestment risk is most closely associated with A)inflation risk B)market risk C)capital risk D)call risk

D

Political risk is more associated with A)developed economies but could occur even in emerging economies B)emerging economies and can never occur in highly developed ones C)developed economies and not with emerging economies D)emerging economies, but could occur even in highly developed ones

D

Portfolio diversifying might be used to reduce which of the following risks? A)Interest-rate risk B)Market risk C)Inflation risk D)Business risk

D

Regarding different types of risk, which of the following is TRUE? A)Changes in regulations represent political risk. B)Changes in regulations represent potential legislative risk. C)Enactment of, or changes in, laws represent political risk. D)Enactment of, or changes in laws, represent potential legislative risk.

D

Risks that are unique to a specific industry, business type, or investment type are known as A)security risks B)stock market risk C)systematic risks D)nonsystematic risks

D

The ratings on the debt instruments of a foreign country with outstanding loans from a number of other countries worldwide have been downgraded. The impact felt due to the risk of possible default is known as A)political risk B)legislative risk C)interest-rate risk D)sovereign risk

D

The risk that changes in the overall economy will have an adverse effect on individual securities regardless of the company's circumstances is known as A)investment risk B)securities risk C)nonsystematic risk D)systematic risk

D

The risk when investing, where one has the potential to lose all or part of the investment due to circumstances that are unrelated to the issuer's financial strength or well-being, is known as A)business risk B)financial risk C)call risk D)capital risk

D

Those holding the securities of a company where rules might change that impact or upset the way the company does business are exposed to A)currency risk B)liquidity risk C)financial risk D)regulatory risk

D

When interest rates are falling, which bonds are most likely to expose holders to call risk? A)All bonds, regardless of whether or not they are callable B)All bonds, regardless of the coupon rate C)Callable bonds with lower coupons D)Callable bonds with higher coupons

D

Which of the following accurately characterizes capital risk? A)It is minimal when investing in derivatives, such as options. B)It is the potential for loss due to an issuer's financial strength. C)It is always high when investing in government securities. D)It can be reduced by diversification.

D

Which of the following is TRUE regarding currency risk? A)It is a systematic risk and, therefore, cannot be reduced by diversification. B)It is a systematic risk and, therefore, can be reduced by diversification. C)It is a nonsystematic risk and, therefore, cannot be reduced by diversification. D)It is a nonsystematic risk and, therefore, can be reduced by diversification.

D

Which of the following statements best describes financial risk? A)The risk that when interest rates decline, it is difficult to invest proceeds from redemptions B)The risk that a security with a call feature might be called before maturity C)A risk generally caused by poor management and operating decisions D)The risk that an issuer will be unable to meet interest and principal payments on debt obligations

D

Which of the following would be considered excessive transactions? A)A customer orders 100 shares. The registered representative places an order for him for 200 shares. B)A customer orders 5,000 shares of an over-the-counter stock. The registered representative orders 100 shares for himself before placing the customer's order. C)A registered representative places a customer's securities into the firm's investment account. D)A registered representative buys and sells the same security for a customer three times during a single day

D