SIE practice questionmediumLiquidity risk
A municipal bond investor finds that it is difficult to sell their bond quickly without affecting its price. What risk does this illustrate?
- ABusiness risk
- BInterest rate risk
- CLiquidity risk✓ Correct answer
- DLegislative risk
Explanation
Why C — Liquidity risk
Liquidity risk is the difficulty of selling an asset quickly at a fair price. Business risk relates to the issuer's operations, interest rate risk to changing rates, and legislative risk to changes in laws affecting securities.
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