alleryStart learning →Which risk poses the greatest potential danger to investors in stock funds?
APrepayment risk
BCredit risk
CMarket risk
DInflation risk
Answer & Solution
Correct answer: C. Market risk
1. Stock funds invest primarily in stocks, which are also known as equities.
2. Of the risks they face, market risk poses the greatest potential danger.
3. Stock prices can move for broad reasons such as the strength of the economy or demand for particular products.
4. Prepayment and credit risk belong to bond funds, and inflation risk is the one commonly named for money market funds.
_Source: US SEC Office of Investor Education and Advocacy, "Mutual Funds and ETFs: A Guide for Investors", section Stock Funds_
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