Answer: Quantifiable: Equity price risk; Non-quantifiable: Risk of terrorist attack

## Explanation **Correct Answer: C** **Equity price risk** is a quantifiable risk because it can be measured in numerical terms. For instance, if a stock's price drops from $100 to $90, the equity price risk is quantifiable as a 10% loss. **Risk of terrorist attack** is a non-quantifiable risk. It's a type of event risk that is inherently unpredictable and difficult to measure numerically. Its impact on investments is uncertain and cannot be precisely quantified. ### Analysis of Other Options: **Option A is incorrect** because both interest rate risk and default risk are quantifiable risks: - **Interest rate risk**: The risk that an investment's value will change due to changes in interest rates can be measured numerically - **Default risk**: The risk that a borrower will be unable to make required payments can be quantified using credit ratings or credit spreads **Option B is incorrect** because: - **Civil war** is a non-quantifiable risk (political risk that is inherently uncertain) - **Liquidity risk** is a quantifiable risk (can be measured in terms of bid-ask spread, market depth, or impact cost) **Option D is incorrect** because: - **Civil war** is a non-quantifiable risk due to its unpredictable nature - **Settlement risk** is a quantifiable risk (can be measured in terms of potential losses if a counterparty defaults during settlement) ### Key Distinction: - **Quantifiable risks**: Financial/market risks that can be measured numerically (e.g., equity price risk, interest rate risk, liquidity risk) - **Non-quantifiable risks**: Event/operational risks that are difficult to measure numerically (e.g., terrorist attacks, civil war, political instability)

Author: Tanishq Prabhu