AICPA Exam CPA-Business Topic 1 Question 29 Discussion

Choice 'd' is correct. Liquidity risk is associated with the ability to sell the temporary investment in a short period of time without significant price concessions.

Choice 'a' is incorrect. Interest rate risk is the fluctuation in the value of a 'financial asset' when interest rates change.

Choice 'b' is incorrect. Purchasing power risk is the risk that price levels will change and affect asset values (mostly real estate).

Choice 'c' is incorrect. Financial risk is a general category of risk that includes:

* Interest rate risk

* Market risk

* Purchasing power risk

* Liquidity risk

* Default risk