Types of Investment Risk - Practice Questions 1 - 4

  1. Jeremy Smith, a Certified Financial Planner™, has scheduled a meeting with his client Claire Byrum, a sixty five year old widow. In it, he fields questions from her concerning Tallinvest, a market neutral hedge fund specializing in fundamental research of companies in the Baltic states of Lithuania, Latvia and Estonia. In framing his discussion, he advises her of several risks with which she, a dollar based investor, needs to be concerned. They are:
    1. Political Risk
    2. Inflation Risk
    3. Currency Risk
    4. Business Risk
    1. i & ii
    2. i,iii & iv
    3. iii only
    4. i, ii, iii & iv
  2. A high net worth investor is considering the purchase of a municipal bond portfolio. The risk he would be most concerned about is:
    1. Reinvestment Risk
    2. Default Risk
    3. Business Risk
    4. Tax Risk
  3. Fixed income investments are subject to all of the following risks, except:
    1. Purchasing Power Risk
    2. Interest Rate Risk
    3. Liquidity Risk
    4. Sovereign Risk
    5. None of the above
  4. Compunet, a Silicon Valley start up company, went public several years ago. After experiencing a brief run-up in price in its first couple of years, its share price was flat and then dropped precipitously pursuant to an announcement by the vice-chairman that a widely anticipated product launch was scuppered due to production problems at its plant in St. Helens. This would be an example of what sort of risk?
    1. Marketability Risk
    2. Inflation Risk
    3. Business Risk
    4. Systematic Risk
Practice Questions 5 - 9
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