In each scenario, indicate which one of the following types of risks is being de
ID: 1182564 • Letter: I
Question
In each scenario, indicate which one of the following types of risks is being described: event risk interest rate risk liquidity risk purchasing power risk tax risk a. A bond pays a 10% coupon rate, but you are not able to reinvest your coupon payments at 10%, so your fully compounded rate of return is less than 10%. b. You own a baseball card collection that has tripled in value, and you need cash now, but you cannot find any buyers for your collection. c. You purchased a stock with a high dividend in order to take advantage of the favorable tax treatment of dividends, but Congress allows that law to expire. d. You put your money in a 5-year CD paying 4%, but inflation over that period turns out to be 6%. e. Your investment in a local bakery becomes worthless after a tornado destroys the business.Explanation / Answer
interest rate tax risk event risk purchasing power risk liquidity risk event risk