Question

If a bondholder is concerned about the risk that they will not be able to sell the security quickly at some later time, what kind of risk are they concerned about? Select one: a. Interest rate risk b. Liquidity risk c. Default risk d. Inflation risk

Answer 1

Answer is b. Liquidity Risk

Liquidity risk is the risk that arises from being able to quickly sell or buy an investment, quickly enough to prevent or minimize a loss.

Interest rate risk is the risk of adverse price movements with changes in interest rates.

Default risk is the risk of non payment of interest or maturity value by the obigor.

Inflation risk is the risk of general price risk (inflation) in economy, which decreases the real rate of return earned by the investment.