Langara CollegeACCOUNTING 294

Several years ago, Tina purchased a bond with a 10 year maturity date. The bond was issued by Seabrook Incorporated, an issuer that is not very well known. Tina would like to sell the bond and use the money to invest in a business opportunity. When she approaches her advisor about making the sale, she learns that there are not many buyers interested and she will likely get much less for the bond than she anticipated. Which type of risk is this?

a)credit risk

b)market risk

c)interest rate

d)liquidity risk

Answer:

Interest rate risk.

Step-by-step explanation

 Interest risk means the risk of investing in one bond arise due to non-investing in second bond or security in other language we can say it is opportunity risk. Here Tina resolves to buy bonds which will mature after ten years but also wished to invest on another opportunity available and also found out that there are not many buyers in the market and was going to be paid less amount for the bond.

Market risk is the risk that the value of your investment will decrease due to changes in the market.

Liquidity risk is a risk of not being able to cash out an investment quickly enough to either meet cash flow needs or to prevent a loss.

Credit risk is the risk that a borrower will fail to repay interest, principal or bot. Example, banks face a significant amount of credit risk because of its operations. Banks's work is to lend money so it has a huge amount of credit risk.