Unit 2: Risk, Return And Investment Performance- Quiz
Define risk in terms of investing.
The degree of uncertainty associated with the return of an asset; risk
can also be thought of in terms of price volatility or the possibility of
How is the holding period of an investment related to its risk?
Securities that fluctuate, such as stocks, can have considerable risk of
principal loss when held for a short period while securities that do not fluctuate, such as certificates of deposit, can have considerable purchasing power risk when held for a long period.
3. Explain how systematic risk can affect a client’s investment.
Systematic risk is the uncertainty of return inherent in the system of which any asset is a part. It is the risk of the investment environment that exists outside of individual investments
Types of systematic
risk include purchasing power risk, reinvestment rate risk, interest rate risk, market risk, and exchange rate risk(“PRIME”).
Define the following types of systematic risk.
purchasing power risk
interest rate risk
exchange rate risk
Define unsystematic risk.
Depends on factors unique to a particular asset; this risk can be
reduced through diversification; includes business risk, financial risk, default risk, and liquidity risk.