SIE 20 - Investment Risks

  1. What are systematic risks?
    Risks that cannot be avoided through diversification.
  2. What is interest-rate risk?
    Risk that the value of a bond will decline due to a rise in interest rates.
  3. What is inflation risk?
    • Risk that an asset may decline in value over time due to a shrinking value in currency
    • Bond's real interest rate = nominal yield - inflation
  4. What is beta?
    A measurement of a security's volatility relative to the entire market
  5. What is a business/credit risk?
    Risk that a company may perform poorly and cause a decline in the stock value or inability to pay back bond holders.
  6. Regulatory risk vs political risk?
    • Regulatory = US regulations
    • Political = non-US politics
  7. What instruments commonly have liquidity risk?
    • Real estate
    • LLPs
  8. What is prepayment risk?
    Risk that mortgages will be paid off early due to lower interest rate and lower yields will occur over time.
  9. What is reinvestment risk?
    Risk that interest rates will fall an that semiannual coupons will be reinvested at a lower rate.
  10. What is currency risk?
    Risk of loss when converting a foreign investment into US dollars.
Card Set
SIE 20 - Investment Risks
SIE 20 - Investment Risks