Products & Their RisksQuestion 148 of 398
Liquidity risk is the risk that an investor:
a.Cannot sell an investment quickly at or near its fair market value
b.Will lose principal because the issuer defaults
c.Will see the bond called before maturity
d.Will earn less because inflation rises
Explanation
Liquidity (marketability) risk is the chance that an investor cannot convert an asset to cash quickly without accepting a significant price concession. Thinly traded securities, such as certain municipal bonds, limited partnerships, or small-cap stocks, carry higher liquidity risk. Highly traded assets like Treasury bills or large-cap stocks have low liquidity risk.
Practice all 398 questions free — no signup required.
Related questions on this topic
- Political risk is most relevant to an investor who:
- Legislative (regulatory) risk refers to the possibility that:
- Currency (exchange rate) risk is the risk that:
- Reinvestment risk is greatest for an investor who:
- An investor holding a 20-year municipal bond faces the greatest interest rate risk because:
- Credit (default) risk is best measured for a corporate bond by looking at its:
Last reviewed: · editorial process
PrepPass Editorial Team · Verified against FINRA Securities Industry Essentials (SIE) Exam · How we review