Explain whether you agree or disagree with the following statement: "Because my bond is guaranteed by an insurance company, I have eliminated credit risk."
What will be an ideal response?
You would disagree with the statement because a bond's guarantee is only as good as the insurance company guaranteeing it. Thus, various forms of credit risk will still exist. For example, credit risk consists of default risk, credit spread risk, and downgrade risk. These risks are not necessarily eliminated if there is a financial guaranty by a nongovernment third-party entity such as a private insurance company. This is because insurance companies themselves can face financial difficulties. This fact was brought home to market participants at the end of 2007 when specialized insurance companies that provide financial guarantees faced financial difficulties and the downgrading of their own credit rating.
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Lux Limited Partnership offered $300,000 of its limited partnership interests under Rule 504 of Regulation D of the Securities Act of 1933. The securities were registered and disclosure was made under state law. Which of the following statements is true?
A. The resale of the limited partnership interests by a purchaser will not be restricted. B. The limited partnership interests may be sold only to accredited investors. C. The exemption under Rule 504 is not available to an issuer of limited partnership interests. D. The limited partnership interests may not be sold to more than 35 investors.
________ is a situation in which one party threatens to do a wrongful act unless the other party enters into a contract
A) Scienter B) Duress C) Battery D) Assault