For a thinly traded stock with no trading activity today, what is the most significant risk?

For a thinly traded stock with no trading activity today, what is the most significant risk?

• A. Business risk
• B. Liquidity risk
• C. Inflation risk
• D. Market risk

Answer: (B)

Liquidity risk is the most significant risk for a thinly traded stock with no trading activity. This type of risk refers to the challenge an investor faces when attempting to buy or sell an asset without causing a significant impact on its price. In the case of thinly traded stocks, there are fewer market participants and lower trading volumes, making it difficult to execute trades quickly or at favorable prices. Consequently, in the absence of trading activity, it becomes increasingly problematic for investors to liquidate their positions, which can lead to losses or inability to enter or exit positions as desired. While business risk relates to the operational and financial uncertainties within the company, inflation risk involves the effect of rising prices on investment returns, and market risk pertains to the broader economic and market fluctuations affecting asset prices. None of these risks address the immediate concern an investor faces in terms of executing trades in a stock that lacks liquidity, thus reinforcing liquidity risk as the primary concern in this scenario.

Liquidity risk is the most significant risk for a thinly traded stock with no trading activity. This type of risk refers to the challenge an investor faces when attempting to buy or sell an asset without causing a significant impact on its price. In the case of thinly traded stocks, there are fewer market participants and lower trading volumes, making it difficult to execute trades quickly or at favorable prices. Consequently, in the absence of trading activity, it becomes increasingly problematic for investors to liquidate their positions, which can lead to losses or inability to enter or exit positions as desired.

While business risk relates to the operational and financial uncertainties within the company, inflation risk involves the effect of rising prices on investment returns, and market risk pertains to the broader economic and market fluctuations affecting asset prices. None of these risks address the immediate concern an investor faces in terms of executing trades in a stock that lacks liquidity, thus reinforcing liquidity risk as the primary concern in this scenario.