Mary Sheets is considering investing in 30 year Corporate Bonds issued by Duke Energy Company. She knows that she will earn an interest rate of 8% by purchasing these bonds. However, she is concerned because she might need to take her money out of this investment in a year and she has heard that she might have to sell the bonds at a significantly lower price than she will purchase them for. What type of risk is Mary concerned about?
A) Inflation risk
B) Interest rate risk
C) Income risk
D) Personal risk
E) Liquidity risk

Question

Quizplus · Accepted Answer

Mary is concerned about liquidity risk, which is the risk of not being able to sell an investment at a fair price when it is needed. In this case, if she needs to sell the bonds before they mature, she may have to sell them at a lower price than she paid for them, which could result in a loss of principal. This is a specific type of liquidity risk known as marketability risk.

Mary Sheets Is Considering Investing in 30 Year Corporate Bonds