Products & Their RisksQuestion 51 of 398
An investor wants to sell a thinly traded municipal bond quickly but can only do so by accepting a much lower price. This difficulty illustrates:
a.Interest-rate risk
b.Credit risk
c.Liquidity (marketability) risk
d.Reinvestment risk
Explanation
Liquidity or marketability risk is the danger that an investor cannot sell a security quickly at a fair price, which is common with thinly traded bonds. It is distinct from interest-rate, credit, and reinvestment risk, which concern price sensitivity, default, and reinvesting cash flows.
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