LOS v: Explain the importance of event risk, market liquidity risk, market risk, and "J factor risk" for distressed securities investors.

Q1. In distressed securities investing, event risk is:

A)   a source of both return and diversification.

B)   a source of diversification only.

C)   a source of return only.

Q2. In distressed securities investing, the fact that there can be cyclical supply and demand for these investments is associated with:

A)   arbitrage risk.

B)   J-factor risk.

C)   market liquidity risk.

Q3. In distressed securities investing, the type of risk that is from the human element associated with decisions determined in a court of law is called:

A)   event risk.

B)   decision risk.

C)   J-factor risk.

LOS v: Explain the importance of event risk, market liquidity risk, market risk, and "J factor risk" for distressed securities investors. fficeffice" />

Q1. In distressed securities investing, event risk is:

A)   a source of both return and diversification.

B)   a source of diversification only.

C)   a source of return only.

Correct answer is A)

Event risk refers to the fact that the return on a particular investment within this class typically depends on a particular event for a company, and that can provide good diversification.

Q2. In distressed securities investing, the fact that there can be cyclical supply and demand for these investments is associated with:

A)   arbitrage risk.

B)   J-factor risk.

C)   market liquidity risk.

Correct answer is C)

Market liquidity risk refers to the low liquidity and the fact that there can be cyclical supply and demand for these investments.

Q3. In distressed securities investing, the type of risk that is from the human element associated with decisions determined in a court of law is called:

A)   event risk.

B)   decision risk.

C)   J-factor risk.

Correct answer is C)

In J-factor risk, the “J factor” refers to the role that courts and judges can play in the return, and this involves an unpredictable human element.

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