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Question 1 of 10
1. Question
For all but inflation protection bonds, an investor is exposed to inflation risk by investing in which of the following?
I. Stocks
II. Real Estate
III. Fixed-rate bonds
IV. IndicesCorrect
For all but inflation protection bonds, an investor is exposed to inflation risk by investing in fixed-rate bonds because the interest rate the issuer promises to make is fixed for the life of the issue.
Incorrect
For all but inflation protection bonds, an investor is exposed to inflation risk by investing in fixed-rate bonds because the interest rate the issuer promises to make is fixed for the life of the issue.
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Question 2 of 10
2. Question
An investor who purchases a security not guaranteed by the U.S. government is viewed as being exposed to which of the following risk?
I. inflation risk
II. Purchasing power risk
III. fixed-rate risk
IV. credit riskCorrect
An investor who purchases a security not guaranteed by the U.S. government is viewed as being exposed to credit risk.
Incorrect
An investor who purchases a security not guaranteed by the U.S. government is viewed as being exposed to credit risk.
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Question 3 of 10
3. Question
Which of the following is(are) form(s) of credit risk?
I. Default risk
II. Downgrade risk
III. Spread risk
IV. Asset riskCorrect
There are several forms of credit risk: default risk, downgrade risk, and spread risk.
Incorrect
There are several forms of credit risk: default risk, downgrade risk, and spread risk.
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Question 4 of 10
4. Question
Which of the following is defined as the risk that the issuer will fail to satisfy the terms of the obligation with respect to the timely payment of interest and repayment of the amount borrowed thereby forcing the issuer into bankruptcy?
I. Default risk
II. Credit risk
III. Bankruptcy risk
IV. Liquidity riskCorrect
Default risk is defined as the risk that the issuer will fail to satisfy the terms of the obligation with respect to the timely payment of interest and repayment of the amount borrowed thereby forcing the issuer into bankruptcy.
Incorrect
Default risk is defined as the risk that the issuer will fail to satisfy the terms of the obligation with respect to the timely payment of interest and repayment of the amount borrowed thereby forcing the issuer into bankruptcy.
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Question 5 of 10
5. Question
In the case of bonds, investors gauge the which of the following risk(s) of an entity by looking at the credit ratings assigned to issues by rating companies, popularly referred to as rating agencies?
I. Liquidity risk
II. Downgrade risk
III. Default risk
IV. Credit riskCorrect
In the case of bonds, investors gauge the credit risk of an entity by looking at the credit ratings assigned to issues by rating companies, popularly referred to as rating agencies.
Incorrect
In the case of bonds, investors gauge the credit risk of an entity by looking at the credit ratings assigned to issues by rating companies, popularly referred to as rating agencies.
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Question 6 of 10
6. Question
Which of the following is(are) rating agencies in the United States?
I. Moody’s Investors Service
II. Standard & Poor’s
III. Leeman Brothers
IV. FitchCorrect
There are three rating agencies in the United States: Moody’s Investors Service, Standard & Poor’s, and Fitch.
Incorrect
There are three rating agencies in the United States: Moody’s Investors Service, Standard & Poor’s, and Fitch.
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Question 7 of 10
7. Question
Which of the following is the risk that a bond will be downgraded?
I. Bond risk
II. Liquidity risk
III. Default risk
IV. Downgrade riskCorrect
When the credit rating of a bond is lowered by a rating agency, this action by a rating agency is referred to as the downgrading of a bond. The risk that a bond will be downgraded is called downgrade risk.
Incorrect
When the credit rating of a bond is lowered by a rating agency, this action by a rating agency is referred to as the downgrading of a bond. The risk that a bond will be downgraded is called downgrade risk.
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Question 8 of 10
8. Question
When an investor wants to sell an asset, he or she is concerned with which of the following?
I. The buyers
II. The investors
III. The price
IV. The value of the assetCorrect
When an investor wants to sell an asset, he or she is concerned whether the price that can be obtained from dealers is close to the true value of the asset.
Incorrect
When an investor wants to sell an asset, he or she is concerned whether the price that can be obtained from dealers is close to the true value of the asset.
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Question 9 of 10
9. Question
Which of the following is the risk that the investor will have to sell an asset below its true value where the true value is indicated by a recent transaction?
I. Asset risk
II. Market value risk
III. Liquidity risk
IV. Downgrade riskCorrect
Liquidity risk is the risk that the investor will have to sell an asset below its true value where the true value is indicated by a recent transaction.
Incorrect
Liquidity risk is the risk that the investor will have to sell an asset below its true value where the true value is indicated by a recent transaction.
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Question 10 of 10
10. Question
The primary measure of liquidity is the size of the spread between which of the following?
I. The bid price
II. The asset price
III. The ask price
IV. The liquid priceCorrect
The primary measure of liquidity is the size of the spread between the bid price (the price at which a dealer is willing to buy an asset) and the ask price (the price at which a dealer is willing to sell an asset).
Incorrect
The primary measure of liquidity is the size of the spread between the bid price (the price at which a dealer is willing to buy an asset) and the ask price (the price at which a dealer is willing to sell an asset).