Chapter 15 - Selecting a Mutual Fund
Highest to lowest risk:
Balanced funds
Real estate funds
Specialty funds
Mortgage funds - correct answer ✔Specialty funds
Real estate funds
Balanced funds
Mortgage funds
Highest to lowest risk all funds: SREDBBMM - correct answer ✔Specialty
Funds
Real Estate Funds
Equity Funds
Dividend Funds
Balanced Funds
Bond Funds
Mortgage Funds
Money Market Funds
What type of risk is described by sensitivity of a security's price to new
information leading to changes in demand? - correct answer ✔Unique risk
(also called Specific risk)
Your client is interested in reducing the potential for default risk (The unique
risk that a bond coupon will not be paid) in her fixed-income portfolio. What
, would you recommend to your client? - correct answer ✔Avoid specializing
in corporate bonds
Your client is looking for ways to eliminate systematic risk (Market risk (also
called systematic risk)). What strategy is there that you can recommend that
eliminates systematic risk? - correct answer ✔There are no strategies
available
What type of risk is described by changes in the overall market affecting an
entire class of securities? - correct answer ✔Market risk (also called
systematic risk)
Unique risk (also called Specific risk) - correct answer ✔Sensitivity of a
security's price to new information leading to changes in demand
Can be reduced with diversification
Default risk - correct answer ✔The unique risk that a bond coupon will not be
paid
Reduced by avoiding specializing in corporate bonds
Market risk (also called systematic risk) - correct answer ✔Changes in the
overall market affecting an entire class of securities
No ways to reduced risk
Exchange rate risk - correct answer ✔Changes in the relative value of the
currencies of the countries of investment
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