SIE (Securities Industry Essentials) Practice Exam

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What risk do DPPs have that makes it harder for the investor to retrieve their funds?

Default risk
Liquidity risk
Interest rate risk
Market risk

The correct answer is: Liquidity risk

DPPs, or direct participation programs, have the risk of low liquidity for investors. This means that it can be harder for investors to sell their shares and retrieve their funds in a timely manner. This is different from default risk, which refers to the possibility of the issuer being unable to make interest or principal payments, and interest rate risk, which refers to the chance of changes in interest rates affecting the price of the investment. Market risk, on the other hand, refers to the general risk of fluctuations in the market affecting the value of the investment. These risks are also important to consider, but do not directly impact the ability of the investor to retrieve their funds.