NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Investing in Fixed Income Securities (NISM XXI-A)
Which risk is the risk that the issuer of a bond may fail to pay interest or principal on time?
This is credit risk, also called default risk. It arises when the bond issuer is unable to make interest or principal payments on time. Credit rating agencies assess this risk, with lower ratings indicating higher chances of default.
- AReinvestment risk
- BCredit riskCorrect
- CLiquidity risk
- DInflation risk
Explanation
Credit or default risk concerns the issuer's ability to pay coupons and principal. Reinvestment risk concerns reinvesting coupons at lower rates, liquidity risk concerns difficulty selling, and inflation risk concerns erosion of purchasing power.
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