Answer: Neither statement by Reilly nor Meyers are correct.

## Explanation Both statements contain incorrect assumptions about event risk: **Reilly's Statement (Investment grade bonds = no event risk concern):** - **Incorrect**: Investment grade bonds are still subject to event risk. Event risk refers to sudden, unexpected events that can significantly impact a company's creditworthiness, such as mergers, acquisitions, restructurings, or other corporate actions. - Investment grade bonds can be downgraded to speculative grade due to such events, leading to substantial price declines. - Examples include leveraged buyouts, major litigation, or regulatory changes that can affect even investment grade issuers. **Meyers' Statement (Small number of issues + idiosyncratic risk = negligible event risk):** - **Incorrect**: While event risk is indeed idiosyncratic (firm-specific), having a small number of different issues actually increases concentration risk. - With fewer holdings, the impact of any single event on the overall portfolio is magnified. - A concentrated portfolio with limited diversification makes the portfolio more vulnerable to idiosyncratic risks, including event risk. **Correct Understanding:** - Event risk affects bonds across all credit quality levels - Proper diversification across issuers, industries, and geographies is needed to mitigate event risk - Investment grade bonds are not immune to event-driven downgrades or defaults - A small portfolio actually increases vulnerability to idiosyncratic risks rather than reducing them Therefore, neither statement is based on correct assumptions.

Author: LeetQuiz .