Question

What factors impact the risk of a fixed income security (such as a bond)?

		The risk of a security is impacted by the provisions related to options available to the issuer.
		The risk of a security is impacted by the provisions related to options available to the investor.
		The risk of a security is impacted by the default risk of the issuer.
		All of the above impact the underlying risk of the security.

Answer 1

Answer:

Correct answer is:

All of the above impact the underlying risk of the security.

Explanation:

Fixed income securities includes bonds, callable bonds, convertible preferred shares etc.

The risks of fixed income securities impacted by factors like:

Default risk (risk that the issuer defaults in payment of interest and/or face value on redemption)

Provisions related to options which are available to the issuer. For example in case of callable bonds, the option to call remains with issuer.

Provisions related to options which are available to the investor. For example, convertible preference share give investors the option to convert their preferred shares into common stock with the issuing company.

As such option D is correct. Other options A, B and C are incorrect.