Question

Mary Smith 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

Answer 1

Answer:

Mary Smith is concerned about systematic risk.

Explanation:

Systematic risk refers to the ongoing risk caused by a combination of factors, including the economy, geopolitical issues, corporate health, and others.  It covers the impact on the overall market and includes systemic risks that are peculiar to an industry.  Systemic risk will only impact the market for Corporate Bonds.  But, Mary's concern shows that other factors might combine, causing her to require her money back after a year.