soddy1979

A is valid. Only amortizing securities are subject to prepayment risk.

C is the wrong definition.

B is wrong because liquidity risk is still relevant if the manager needs to mark holdings to market for performance reporting purposes. Low liquidity for bond can mean prevailing price is not accurate measure of bond's value. Also, an illiquid market for an instrument like this is undesirable. I wanna be able to sell when I want goddamit!

I know this is right because I have done this question before.



Edited 1 time(s). Last edit at Wednesday, June 1, 2011 at 04:59PM by robjames1984.