SEC 7.1

1.When the interest paid on a debt security does not keep up with inflation, the investor suffers from which of the following risks? A. Liquidity risk B. Call risk C. Purchasing power risk D. Currency risk

2. Your customer carefully researched the purchase of stock in Green Shoe Company. After the purchase, the equity markets dropped 20%, and Green Shoe stock dropped along with it. Green Shoe gave up 15% during the drop. This is an example of A. business risk B. interest rate risk C. market risk D. nonsystematic risk

3. One of the advantages of a security being traded on a listed stock exchange is the ready availability of buyers and sellers. This has the tendency to reduce or even eliminate A. inflation risk B. liquidity risk C. market risk D. price risk

4. Before making an investment, it is wise to evaluate the potential risk involved. It is safe to assume that I. the greater the risk, the greater the potential reward. II.the greater the risk, the lower the potential reward. Ill. the lower the risk, the greater the potential loss. IV. the lower the risk, the lower the potential reward. A. l and III B. l and IV C. Il and III D. Il and IV