Types of Risk
Exam Weight: ~6 questions (5% of exam)
Understanding investment risk is fundamental to portfolio construction and client suitability. This unit covers the major risk categories, how they affect different securities, and what investors can do to manage them.
Context: Risk-Return Tradeoff
Before examining specific risks, understand the foundational principle: higher risk generally means higher expected return. This principle underlies why different securities offer different expected returns; from Treasury bills (lowest risk, lowest return) to investment-grade bonds (moderate risk/return) to stocks and speculative investments (higher risk, higher potential return).
What You'll Learn
This unit covers four exam scope items: