Unit 19 - Types of Investment Risk

Which of the following will be the most likely risk that you will face during the first year after purchasing a corporate AA bond that matures in 15 years? A) Market B) Interest rate C) Liquidity D) Credit

b

Liquidity risk would be greatest for an investor whose portfolio was primarily composed of A) Nasdaq stocks. B) municipal bonds. C) ADRs listed on the NYSE. D) municipal bond UITs.

b UITs, regardless of their portfolio, stand ready to redeem their units so liquidity is not a problem for the investor

Angela, a wealthy client of yours, has constructed her portfolio with individual common stocks that closely match the weighting of the S&P 500 index. In so doing, Angela has significantly reduced her A) market risk B) default risk C) business risk D) systematic risk

c

When a corporation is forced to liquidate its assets, holders of which of the following securities are treated as general creditors? A) Mortgage bonds B) Senior lien preferred stock C) Debentures D) Subordinated debentures

c Liquidation priority begins with the Secured Creditors (mortgage bonds, equipment trust certificates, collateral trust bonds) may also be called senior debt or senior notes. The next level is the general creditors, debentures, because they are issued based on the "general credit of the issuer" are in that pool.