A municipal bond’s rating is downgraded due to the city’s deteriorating financial condition. What risk has increased for the bondholder?

1. AInterest rate risk
2. BLiquidity risk
3. CCredit/default risk✓ Correct answer
4. DInflation risk

Reading one answer is not the same as being ready

Lucky the Banker is a free practice app with 1,867+ SIE questions, weak-area tracking, and timed mock exams. No credit card, no paywall.

• A bond investor is concerned that rising rates will make their existing bonds less attractive, leading to price…
• A client holds a long-term bond. If interest rates rise, the price of the bond is likely to:
• A coupon bond trades at a higher yield than comparable Treasury bonds. What risk premium does this higher yield usually…
• If a bond issuer defaults on payment and does not pay interest or principal when due, the investor suffers from which…
• A bond trader is concerned about volatility in the prices of long-term bonds. Which risk is most relevant to her…
• A client wants to minimize default risk when investing in agency bonds. Which of the following agency securities is NOT…
• A bond with a BB rating is yielding significantly more than a government bond of similar maturity. What is the most…
• If interest rates fall, which bondholder is most likely to have their bond called before maturity?