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Zorluk: ZorSystematic and Market Risks

A registered representative is evaluating the systematic risk exposure of an investor's portfolio, which consists of a diversified mix of U.S. corporate bonds and broad-market equity index funds. Which of the following statements regarding the systematic risks affecting this portfolio are correct?

  1. Rising prevailing interest rates represent a systematic risk that generally depresses the market value of existing corporate bonds regardless of individual issuer credit quality.Cevap
  2. Purchasing power risk cannot be eliminated solely by increasing the number of fixed-income issuers within the bond portfolio.Cevap
  3. C
    Diversifying equity holdings across several hundred distinct domestic companies completely eliminates market risk for the equity holdings.
  4. D
    An increase in prevailing interest rates causes prices of existing fixed-income bonds to rise due to higher coupon demand.

Cevap

The correct statements are that rising prevailing interest rates depress existing bond prices systematically regardless of issuer quality, and purchasing power risk cannot be removed through fixed-income issuer diversification.
Systematic risks affect whole market segments and cannot be diversified away. Rising prevailing interest rates systematically drive down existing bond values regardless of issuer credit rating. Similarly, purchasing power risk affects fixed income broadly, meaning adding more issuers does not protect against inflation.

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1
Identify the key characteristics of systematic (market-wide) risks.
Systematic risks (such as interest rate risk, market risk, and inflation risk) affect entire asset classes or markets and cannot be eliminated through asset diversification.
Distinguishing non-diversifiable market forces from issuer-specific factors is foundational for assessing risk.
2
Analyze the impact of interest rate changes on fixed-income securities.
Interest rates and bond prices share an inverse relationship. Increases in benchmark interest rates reduce the value of existing fixed-coupon bonds across all issuers.
Interest rate risk is a primary systematic risk for fixed-income portfolios.
3
Evaluate the limits of diversification on equity market risk and purchasing power risk.
While broad diversification eliminates unsystematic (business/credit) risk, it leaves systematic market volatility and inflation erosion intact.
Confusing unsystematic risk mitigation with systematic risk elimination leads to incorrect portfolio management conclusions.

Anahtar Kavram

Systematic risks (market, interest rate, purchasing power) impact entire asset classes and cannot be eliminated through portfolio diversification.
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Konular

Systematic and Market Risks

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