Explanation

Liquidity risk refers to the risk that an investor will not be able to buy or sell an asset quickly without significantly affecting its price. Different types of investors have varying levels of concern about liquidity risk:

Option A: A manager of a fixed-income mutual fund

• High concern about liquidity risk
• Mutual fund managers need to maintain liquidity to meet potential redemption requests from investors
• They may need to sell assets quickly if investors withdraw funds
• They must maintain sufficient liquid assets to meet daily liquidity requirements

Option B: An individual investor intending to hold a bond to maturity

• Least concern about liquidity risk
• This investor has a buy-and-hold strategy with no intention of selling before maturity
• They don't need to access the principal before the bond matures
• Market price fluctuations and trading liquidity are irrelevant as long as the issuer doesn't default
• The investor will receive the face value at maturity regardless of market conditions

Option C: An investor using repurchase agreements to purchase bonds

• High concern about liquidity risk
• Repurchase agreements (repos) involve short-term borrowing using securities as collateral
• These investors need to be able to sell or repo the bonds if needed
• They face rollover risk and may need to liquidate positions quickly
• Market illiquidity could prevent them from refinancing their positions

Key Concept: Investors with long-term buy-and-hold strategies are least affected by liquidity risk because they don't need to trade the security. Their primary concern is credit risk (default risk), not the ability to sell the security in the secondary market.

Correct Answer: B - An individual investor intending to hold a bond to maturity