Unit 19

The risk known as opportunity cost is often measured by

comparing the actual return to the return rate of the 91-day treasury bill

The risk to bondholders that bonds may lose value during periods of increasing inflation is known as

interest rate risk

What is most likely to happen to outstanding fixed-income securities when interest rates decline?

prices go up

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

C

The MNO Manufacturing Company, headquartered in Springfield, has just filed for bankruptcy. Under federal bankruptcy law, holders of which of the following would have highest priority with the bankruptcy trustee? A) First lien, senior preferred stock B) Guaranteed bonds C) Mortgage bonds D) Class A common stock

C

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) Liquidity B) Credit C) Interest rate D) Market

C

Calvin has the following securities in his portfolio: ABC common stock, XYZ common stock, PQR mutual fund (domestic small cap), DEZ mutual fund (foreign small cap), 30-year Treasury bond, and 5-year Treasury note. Which of the following risks should not concern Calvin? A) Business risk B) Systematic risk C) Reinvestment rate risk D) Default risk

D

A risk-averse client, living in the United States, 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