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NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Investing in Fixed Income Securities (NISM XXI-A)

Which of the following risks is the possibility that a bond issuer fails to pay interest or principal on time?

This is credit risk, also called default risk. It arises when the issuer fails to pay interest or repay principal on time. Credit ratings from rating agencies help investors assess it, unlike reinvestment, liquidity or inflation risk which concern other issues.

  1. AReinvestment risk
  2. BCredit riskCorrect
  3. CLiquidity risk
  4. DInflation risk

Explanation

Credit or default risk is the risk that the issuer cannot meet its payment obligations. Reinvestment risk concerns reinvesting coupons at lower rates, liquidity risk concerns difficulty selling, and inflation risk concerns loss of purchasing power.

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