Investment Risks: Rapid Fire
Chapters in this video
- 0:00 Systematic versus non-systematic risk and the PRIME acronym
- 1:59 Interest rate risk and the most-tested SIE fact
- 3:38 Interest rate risk versus reinvestment risk, and the zero-coupon trap
- 4:58 Inflation risk's silent destruction of purchasing power
- 5:23 ETN versus ETF credit risk and the investment-grade split
- 6:38 MBS, DPP, and ADR product-specific risks
- 7:13 US Treasury trap: credit-free but not risk-free
- 7:52 The three mitigation tools and hedging exam distinctions
- 8:51 Rapid-fire exam recap
What this video covers
- Why systematic risk hits the whole market and cannot be diversified away, while non-systematic risk is company-specific and dies through diversification
- How the PRIME acronym maps to systematic risks: purchasing power (inflation), reinvestment, interest rate, market, and exchange rate (currency) risk
- Why interest rates and bond prices move in opposite directions, and which bonds face maximum interest rate risk versus maximum reinvestment risk
- How a 30-year zero-coupon bond carries zero reinvestment risk but the highest possible interest rate sensitivity
- Why ETNs carry credit risk as unsecured bank debt while ETFs do not, since they hold real securities in trust
- Where the investment-grade versus junk split sits at BBB-/Baa3, and why downgrade risk hits price but never coupon
- How diversification, rebalancing, and hedging each work, and why covered calls cap upside without being true downside protection
Read the full lesson, free
This video's complete written lesson is free to read in the CertFuel app, no signup wall. The complete SIE course in the app is free too, including adaptive practice questions and spaced-repetition flashcards.