Risk

Question 1

Liquidity Risk

Answer 1

Difficulty in selling (turning an asset to cash) quickly

Question 2

Inflation Risk

Answer 2

Progressive decrease in value of a currency over time often caused by increases in its availability

Question 3

Interest Rate Risk

Answer 3

Decline in prices of debt securities due to an increase in market interest rates

Question 4

Market Risk

Answer 4

Decline in value of an asset due to its association with a decline in the broader market as a whole

Question 5

Purchasing power risk

Answer 5

Aka inflation risk, this speaks to the progressively declining present-day monetary value of an asset limiting the ability to buy “equal value” future assets

Question 6

Default Risk

Answer 6

Inability of an issuer to make future principal and/or interest payments to bondholders

Question 7

Political Risk

Answer 7

Changes to the governing authorities that affect the things such as the value, marketability, future prospects of an investment

Question 8

Reinvestment Risk

Answer 8

Declines in market interest rates mean future investments in debt securities will be at lower rates

Question 9

Credit Risk

Answer 9

A decrease in the expected ability of an issuer to meet their future financial obligations which may lead to default

Question 10

Non-systematic Risk

Answer 10

Drop in value of an asset that is not attributable to a decline in the overall market, market segment, or industry in which it resides

Question 11

Legislative Risk

Answer 11

Changes in law, or policy, usually concerning taxes, that negatively affect investment

Question 12

Business Risk

Answer 12

Mismanagement or new innovations cause a company to lose value

Question 13

Marketability Risk

Answer 13

Difficulty in finding a buyer in the market necessitating a drop in price to sell