SIE Exam Question 580: Answer and Explanation

Question: 580

A fixed income security is subject to which of the following risks?

(1) Exchange rate risk

(2) Purchasing power risk

(3) Default risk

(4) Liquidity risk

(5) Reinvestment risk

• A. (1), (2), (3), and (4) only
• B. (1), (2), (4), and (5) only
• C. (2), (3), (4), and (5) only
• D. All of the above are correct.

Correct Answer: D

Explanation:

A fixed income security may be subject to all of the risks listed. This includes systematic risks that are always present (exchange rate risk, purchasing power risk, reinvestment risk), as well as non-systematic risks, such as default risk and liquidity risk.