Patricia has invested in a bond issued by a company that is not listed on a stock exchange. Which of the following risks apply?

• A. (i) Liquidity only.
• B. (i) and (iii) only.
• C. (ii) and (iii) only.
• D. (i), (ii) and (iii).

Answer: (D)

When a bond isn’t listed on a stock exchange, you face multiple built-in risks. First, liquidity risk is higher because there’s no active market with a centralized venue. It can be harder to sell quickly, and you may have to accept a lower price to find a buyer. Second, valuation or marketability risk arises because there’s no transparent, easily observable market price. You rely on limited quotes or the issuer’s information, which can lead to uncertain or wide bid-ask spreads. Third, credit risk remains, since the issuer could still default or miss payments regardless of whether the bond is listed. So all three risks—liquidity, valuation/marketability, and credit risk—apply.