A:

A. Regulatory risk.

B. Market risk.

C. Liquidity risk.

D. Business risk.






Correct answer: B

Business risk is minimized with a diversified fund, and liquidity is not an issue for a fund that redeems shares each day at the NAV. But an index fund cannot protect an investor from market risk.



RELATED FAQS
  1. What is liquidity risk?

    Learn how to distinguish between the two broad types of financial liquidity risk: funding liquidity risk and market liquidity ... Read Answer >>
  2. You currently own a mutual fund with a Net Asset Value (NAV) of $11.25 ...

    The correct answer is d In mutual funds, the NAV is the total value of the fund's portfolio less liabilities. The NAV is ... Read Answer >>
  3. Why do some closed-end mutual funds trade above or below their net asset values?

    Intuition tells us that a mutual fund's net asset value (NAV) (the net value of all assets within the mutual fund's portfolio ... Read Answer >>
  4. How liquid are Vanguard mutual funds?

    Learn how liquidity applies to the Vanguard mutual fund family. Vanguard is one of the most well-known and largest investment ... Read Answer >>
  5. Why is it that when investors realize returns on a mutual fund, its price tends to ...

    Mutual funds have been in existence since 1924, when the first open-ended mutual fund was created. Since then, the market ... Read Answer >>
  6. Can an open-ended fund's price appreciate significantly?

    Theoretically, open-end mutual fund prices can experience a significant increase in price. However, three factors need to ... Read Answer >>
Related Articles
  1. Mutual Funds

    What mutual funds are: Professionally managed pools of stocks, bonds and/or other instruments that are divided into shares and sold to investors. Pros: Diversification; liquidity; simplicity; ...
  2. Investing News

    4 Factors to Know About Money Market Reform in 2016 (FII, BAC)

    Learn more about the impending implementation of the money market fund reform, including how it impacts individual and institutional investors.
  3. Investing

    A Safer Money Market With Rule 2a-7

    Money markets are traditionally "safe" investments - but Rule 2a-7 just made them a bit safer.
  4. Term

    What is Liquidity Risk?

    Liquidity risk is the risk of being unable to sell an asset fast enough to avoid loss.
  5. Mutual Funds & ETFs

    Mutual Fund Or ETF: Which Is Right For You?

    Learn the differences between these investment products and how to take full advantage.
  6. Financial Advisors

    Impact of SEC's New Money Market Fund Rules

    A look at how new rules introduced by the SEC will impact money market funds.
  7. Investing Basics

    Understanding Liquidity Risk

    Learn about the two types of liquidity risk: funding liquidity risk and market liquidity risk.
  8. Mutual Funds & ETFs

    Why Money Market Funds Break The Buck

    These funds are noted for their safety in a rough market. Read on to find out why.
  9. Mutual Funds & ETFs

    Mutual Funds: Different Types Of Funds

    No matter what type of investor you are, there is bound to be a mutual fund that fits your style. According to the last count there are more than 10,000 mutual funds in North America! That means ...
  10. Stock Analysis

    3 Index Funds with the Lowest Expense Ratios

    Read detailed information about index mutual funds with some of the lowest expense ratios in their categories, and learn about their pros and cons.
RELATED TERMS
  1. Forward Pricing

    A Securities and Exchange Commission regulation that requires ...
  2. NAV Return

    The change in the net asset value of an exchange-traded fund ...
  3. Money Market Fund

    An investment fund that holds the objective to earn interest ...
  4. Index ETF

    Exchange-traded funds that follow a specific benchmark index ...
  5. Mutual Fund

    An investment vehicle that is made up of a pool of funds collected ...
  6. Breaking The Buck

    When the net asset value (NAV) of a money market fund falls below ...
Hot Definitions
  1. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  2. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  3. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  4. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  5. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  6. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
Trading Center