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Question 1 of 10
1. Question
What statement is true in regards of systematic risk?
I. It can be mitigated through diversification.
II. Systematic risks affects the overall market, not just a particular stock or industry.
III. This type of risk is both unpredictable and impossible to completely avoid
IV. Synonym of market risk.Correct
Systematic risk, otherwise known as market risk, refers to the risk of an investment decreasing in value for the sole reason that it is a part of the market as a whole, and often when the market moves up or down, the security moves as a part of the whole. Systematic risk may not be negated through diversification.
Incorrect
Systematic risk, otherwise known as market risk, refers to the risk of an investment decreasing in value for the sole reason that it is a part of the market as a whole, and often when the market moves up or down, the security moves as a part of the whole. Systematic risk may not be negated through diversification.
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Question 2 of 10
2. Question
Which of the following statements is/are true regarding Interest Rate Risk?
I. As interest rates rise, bond prices fall, and vice versa
II. Interest rate risk affects the value of bonds more directly than stocks.
III.It is a major risk to all bondholders.
IV. Interest rates are not benchmarked to the Federal Reserve Rate.Correct
Since decreasing interest rates provide an increase in the value of fixed-income assets, interest rate risk does not describe the downward movement of interest rates. When interest rates move up, the value of fixed-income assets decreases. An investment with a long duration will be more susceptible to interest rate risk due to the greater likelihood of interest rate movement during the lifetime of the investment compared to a short-duration investment.
Incorrect
Since decreasing interest rates provide an increase in the value of fixed-income assets, interest rate risk does not describe the downward movement of interest rates. When interest rates move up, the value of fixed-income assets decreases. An investment with a long duration will be more susceptible to interest rate risk due to the greater likelihood of interest rate movement during the lifetime of the investment compared to a short-duration investment.
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Question 3 of 10
3. Question
What is true regarding barbell strategy?
I. In this the portfolio is concentrated in bonds of a particular maturity or duration.
II. This term is derived from the fact that this investing strategy looks like a barbell, heavily weighted at both ends and with nothing in between.
III. It is useful when interest rates are rising; as the short term maturities are rolled over they receive a higher interest rate, raising the value.
IV. Barbell strategy is formed when a Trader invests in Long and Short duration bonds, but does not invest in the intermediate duration bondsCorrect
This is what gives the appearance of a barbell: heavy on each end with a flat line between the two ends. The short-term bonds provide the investor with liquidity in the event of an increase in interest rates, while the long-term bonds provide the higher income that comes inherently with longer-term holdings.
Incorrect
This is what gives the appearance of a barbell: heavy on each end with a flat line between the two ends. The short-term bonds provide the investor with liquidity in the event of an increase in interest rates, while the long-term bonds provide the higher income that comes inherently with longer-term holdings.
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Question 4 of 10
4. Question
Which of the following statement is/are true?
I. The ladder strategy does not increases liquidity of bond.
II. In ladder strategy bonds mature at different time and you continually reinvest them.
III.The barbell strategy is used to take advantage of the best aspects of short-term and long-term bonds
IV. In bullet strategy bonds invested at different time have the same maturity date.Correct
This results in multiple bonds being purchased at different times but maturing at the same time. This can be viewed as the polar opposite of the “ladder” strategy. This approach involves the investor investing the entire portfolio at the beginning of the investment period, but purchasing bonds with varying maturity dates.
Incorrect
This results in multiple bonds being purchased at different times but maturing at the same time. This can be viewed as the polar opposite of the “ladder” strategy. This approach involves the investor investing the entire portfolio at the beginning of the investment period, but purchasing bonds with varying maturity dates.
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Question 5 of 10
5. Question
What is/are true regarding inflation risk?
I. This risk arises from the decline in value of securities cash flow due to inflation, which is measured in terms of purchasing power.
II. Inflation Protection Bonds such as TIPS offer protection against this risk
III.Inflation Risk is also known as Purchasing Power Risk,
IV. This risk arises from the decline in value of securities cash flow due to inflation, which is measured in terms of purchasing power.Correct
Inflation risk, also known as purchasing power risk, is the risk that the value of the goods that a dollar will purchase will decrease with time.One of the most popular strategies to fight inflation in the fixed- income market is to purchase TIPS, or Treasury Inflation Protected Securities.
Incorrect
Inflation risk, also known as purchasing power risk, is the risk that the value of the goods that a dollar will purchase will decrease with time.One of the most popular strategies to fight inflation in the fixed- income market is to purchase TIPS, or Treasury Inflation Protected Securities.
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Question 6 of 10
6. Question
What is true in regards of fixed income market?
I. The fixed-income market is the most susceptible to inflation.
II. It is of no help in combating inflation.
III.The fixed-income market is the least susceptible to inflation.
IV. Investors can combat a portion of the inflation rate risk by investing in fixed-income markets.Correct
The fixed-income market is the most susceptible to inflation risk due to the more stable nature of the investment.This allows investors to combat a portion of the inflation rate risk they have accepted by investing in fixed-income markets.
Incorrect
The fixed-income market is the most susceptible to inflation risk due to the more stable nature of the investment.This allows investors to combat a portion of the inflation rate risk they have accepted by investing in fixed-income markets.
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Question 7 of 10
7. Question
What is an example of unsystematic risk?
I. Nationalization of assets
II. Product shortage due to poor logistics.
III. Natural disasters.
IV. Poor management of a firm.Correct
Examples of unsystematic risk include, but are not limited to, natural disasters, poor management of a firm, a product shortage due to poor logistics, et cetera.
Incorrect
Examples of unsystematic risk include, but are not limited to, natural disasters, poor management of a firm, a product shortage due to poor logistics, et cetera.
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Question 8 of 10
8. Question
Which of the following statement is/are true?
I. Systematic risk is associated with market or segment as a whole.
II. Systematic risk can be controlled.
III. Unsystematic risk can often be negated through diversification and other hedging strategies.
IV. Unsystematic risk is a hazard associated with specific security or industry.Correct
Systematic risk, otherwise known as market risk, refers to the risk of an investment decreasing in value for the sole reason that it is a part of the market as a whole, and often when the market moves up or down, the security moves as a part of the whole. Unsystematic risk, also known as nonsystematic risk, describes the risk inherent in a single security. Unsystematic risk, unlike systematic risk, can often be negated through diversification and other hedging strategies.
Incorrect
Systematic risk, otherwise known as market risk, refers to the risk of an investment decreasing in value for the sole reason that it is a part of the market as a whole, and often when the market moves up or down, the security moves as a part of the whole. Unsystematic risk, also known as nonsystematic risk, describes the risk inherent in a single security. Unsystematic risk, unlike systematic risk, can often be negated through diversification and other hedging strategies.
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Question 9 of 10
9. Question
What is/are true in regards of business risk?
I. Investors most susceptible to business risk are those who have purchased only a single stock.
II. Business risk is the possibility a company will have lower than anticipated profits or experience a loss rather than taking a profit.
III. Not a type of unsystematic risk.
IV. Business risk not influenced by sales volume, per-unit price, competition, the overall economic climate and government regulations.Correct
Investors most susceptible to business risk are those who have purchased only a single stock.Simply put, business risk is the risk that a business in which the investor has invested will fail. Businesses fail for many reasons, from bad management to natural disasters, and are even more prone to failure during economic recessions.
Incorrect
Investors most susceptible to business risk are those who have purchased only a single stock.Simply put, business risk is the risk that a business in which the investor has invested will fail. Businesses fail for many reasons, from bad management to natural disasters, and are even more prone to failure during economic recessions.
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Question 10 of 10
10. Question
Which statement stands true for regulatory risk?
I. Regulatory risk is the risk that a change in laws and regulations will materially impact a security, business, sector or market.
II. A change in laws made by a regulatory body can increase the costs of operating a business, reduce the attractiveness of an investment.
III.The investor who is most susceptible to regulatory risk is one who invests exclusively in a single sector.
IV. The investor who is most susceptible to regulatory risk is one who invests in many sectors.Correct
Regulatory risk refers to the chance that a change in the regulations governing an industry or sector may have an effect on the performance of that industry or sector. Regulations may become so harsh that it is unprofitable for a firm to continue operations, and the firm may close.The investor who is most susceptible to regulatory risk is one who invests exclusively in a single sector or industry,
Incorrect
Regulatory risk refers to the chance that a change in the regulations governing an industry or sector may have an effect on the performance of that industry or sector. Regulations may become so harsh that it is unprofitable for a firm to continue operations, and the firm may close.The investor who is most susceptible to regulatory risk is one who invests exclusively in a single sector or industry,