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. The risk an investor is most likely to face when investing in a discounted U.S. Treasury ...

    a. Call risk b. Reinvestment riskc. Credit riskd. Purchasing power risk Answer: Bbecause call risk would apply more often ... Read Answer >>
  2. The risk an investor is most likely to face when investing in a discounted U.S. Treasury ...

    a. Call risk b. Reinvestment risk c. Credit risk d. Purchasing power risk Answer: Bbecause call risk would apply more often ... Read Answer >>
  3. When are mutual fund orders executed?

    Discover when and how mutual fund shares are bought and sold each day, and find out how price is determined and when the ... Read Answer >>
  4. How much liquidity is considered too much liquidity?

    Learn about the risks of holding too much cash or investing in assets that are too liquid, and discover how liquidity is ... Read Answer >>
  5. How do you find out the price of a mutual fund?

    The easiest way to find out the price of a mutual fund is to look at its net asset value (NAV). NAV is the total value of ... Read Answer >>
Related Articles
  1. Investing

    Understanding Liquidity Risk

    Learn about the two types of liquidity risk: funding liquidity risk and market liquidity risk.
  2. Investing

    Liquidation Blues: When Mutual Funds Close

    Underperforming funds often close their doors, leaving investors down and out.
  3. Investing

    Trading Mutual Funds For Beginners

    Learn about the basics of trading and investing in mutual funds. Understand how the fees charged by mutual funds can impact the performance of an investment.
  4. Investing

    Mutual Fund Vs ETF: Which is Right For You?

    Want to invest but don't understand the difference between investment products? Here we explain ETFs vs. Mutual Funds and which is right for you.
  5. Investing

    A Guide To ETF Liquidation

    There are a lot of ETF options, but not all have staying power. Learn what happens when an ETF fails.
  6. Financial Advisor

    5 Characteristics of Strong Mutual Fund Shares

    Discover some of the basic characteristics shared by good mutual funds that investors can use to help them in selecting funds.
  7. Investing

    The Hidden Differences Between Index Funds

    These funds don't all match index returns. Find out how to avoid costly surprises.
  8. Financial Advisor

    Advising FAs: Explaining Mutual Funds to a Client

    More than 80 million people, or half of the households in America, invest in mutual funds. No matter what type of investor you are, there is bound to be a mutual fund that fits your style.
  9. Investing

    Make Sure You Avoid Adding These Mutual Funds to Your 401(k)

    Find out which five types of mutual funds you should avoid in your 401(k), including why buying this year's hottest fund is likely a losing bet.
RELATED TERMS
  1. Investment Fund

    A supply of capital belonging to numerous investors that is used ...
  2. Liquidity Risk

    The risk stemming from the lack of marketability of an investment ...
  3. Liquid Alternatives

    Liquid alternatives are class of mutual funds that use alternative ...
  4. Target Risk Fund

    A fund that attempts to expose its investors to a specified amount ...
  5. Index Fund

    An index fund is a type of mutual fund with a portfolio constructed ...
  6. Liquid Asset

    An asset that can be converted into cash quickly and with minimal ...
Hot Definitions
  1. Straddle

    An options strategy in which the investor holds a position in both a call and put with the same strike price and expiration ...
  2. Trickle-Down Theory

    An economic idea which states that decreasing marginal and capital gains tax rates - especially for corporations, investors ...
  3. North American Free Trade Agreement - NAFTA

    A regulation implemented on Jan. 1, 1994, that eventually eliminated tariffs to encourage economic activity between the United ...
  4. Agency Theory

    A supposition that explains the relationship between principals and agents in business. Agency theory is concerned with resolving ...
  5. Treasury Bill - T-Bill

    A short-term debt obligation backed by the U.S. government with a maturity of less than one year. T-bills are sold in denominations ...
  6. Index

    A statistical measure of change in an economy or a securities market. In the case of financial markets, an index is a hypothetical ...
Trading Center