What factors are important to consider when assessing investment risks?

• A. Market trends, stock prices, and dividends
• B. Market volatility, credit risk, and liquidity risk
• C. Only credit history and employment status
• D. Long-term interest rates only

Answer: (B)

When assessing investment risks, it is crucial to consider a comprehensive set of factors that can impact the potential return and security of an investment. Market volatility, credit risk, and liquidity risk are fundamental components of this assessment.

Market volatility refers to the fluctuations in the price of assets, which can be caused by various factors including economic conditions, geopolitical events, and investor sentiment. Understanding volatility helps investors gauge the potential for price swings and the risks associated with holding a particular investment during turbulent times.

Credit risk is particularly important in assessing fixed-income securities or bonds, where the likelihood of default by the issuer can significantly affect the investment's value. Evaluating an issuer's creditworthiness enables investors to make informed decisions about the risks they are taking on.

Liquidity risk pertains to the ability to buy or sell an investment quickly without affecting its price significantly. Certain investments may be harder to sell in times of market stress, which can pose a risk if an investor needs to access cash unexpectedly.

In contrast, evaluating solely factors such as credit history and employment status overlooks vital market dynamics and ignores broader economic indicators that could affect investments. Focusing only on long-term interest rates or specific metrics like stock prices and dividends may provide a narrow view that fails to account for the variability and uncertainties in