SIE Exam Dumps | For a customer thinking about purchasing a high-income bond mutual fund, which of the following is considered

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Question 52/80

For a customer thinking about purchasing a high-income bond mutual fund, which of the following is considered the primary risk of the underlying securities in the portfolio?

A. Credit risk

B. Political risk

C. Taxability risk

D. Purchasing power risk

Correct Answer: A

High-income bond mutual funds typically invest in lower-rated (junk) bonds that offer higher yields. These bonds are exposed to significant credit risk, as issuers may default on their payments.
* A is correctbecause credit risk is the primary concern with high-yield bonds.
* Bis incorrect as political risk is more relevant for international investments.
* Cis incorrect because taxability risk is not specific to bond mutual funds.
* Dis incorrect because purchasing power risk is more relevant for fixed-income investments during inflationary periods but is not the primary risk here.

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