Unit 11 Quizzes

Which of the following statements pertaining to the types of risk is not correct?

Business risk is the uncertainty of price fluctuations in the stock market.

Each of the following would be considered a political risk except

adverse weather conditions.

One of your clients owns shares of the NERP Corporation's senior preferred stock. He is concerned about NERP's financial solvency and wonders where he would fall in the event of NERP declaring bankruptcy. The proper response is, the client's claim is

after the creditors, but ahead of the common stockholders.

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

business risk

One of the risks found in equity investing is known as unsystematic risk. The most common way to reduce this risk is?

diversification

The major risk for highly rated corporate bonds is

interest rate changes

An investor's portfolio that consists of all long-term Treasury bonds is most vulnerable to which of the following types of risk?

interest rate risk

The risk of not being able to convert an investment into cash at a time when cash is needed is what type of risk?

liquidity

In October 1987, ABC Manufacturing Company showed a strong balance sheet. Nevertheless, its stock lost 15 points in the "crash of 1987." This is an example of

market risk

A risk-averse client, living in the United States and holding a high proportion of his assets in cash and cash equivalents in U.S. dollars, is exposed to which of the following risks?

purchasing power risk

All of the following statements concerning the types of risk are correct except

reinvestment rate risk is the risk that proceeds available for reinvestment must be reinvested at a higher rate than that of the investment vehicle that generated the proceeds.

A general risk component representing the variability of a stock's total return as it directly relates to overall movements in the general economy is known as

systematic risk

On October 15, 2008, the Dow Jones Industrial Average lost 733 points, the largest single point drop in its history. After the markets closed on Tuesday, October 14th, ABC Manufacturing Company released its 3rd quarter operating results with earnings that surpassed all estimates. However, by the close of the market on October 15th, the price of the stock was down 15 points. This is an example of

systematic risk

The term used to describe the risk that affects all securities is

systematic risk

The STU Corporation has issued common stock, preferred stock, promissory notes, and mortgage bonds. Should STU enter bankruptcy proceedings, the order of payment against claims would be

the mortgage bonds, the promissory notes, the preferred stock, and the common stock.