Final answer:
Investors must consider a variety of risks including market risk, credit risk, and liquidity risk, as well as others such as inflation, interest rate, and political risks. These factors impact the overall performance, safety, and liquidity of investments. The correct option for the major categories of investment risk is A) Market risk, credit risk, and liquidity risk.
Step-by-step explanation:
When considering investment risk, several major categories must be evaluated to make informed decisions. These risks include market risk, which is the potential for an investor to experience losses due to factors that affect the overall performance of the financial markets. Credit risk concerns the possibility that a borrower will default on their financial obligations to the investor. Lastly, liquidity risk relates to the ease with which an investment can be sold for cash without a significant loss in value.
Aside from these, other potential risks that investors may consider include inflation risk, the risk that inflation will erode the purchasing power of returns, interest rate risk, which involves changes in the value of an investment due to fluctuating interest rates, and political risk, the risk of loss caused by changes in a country's government or regulatory policies. Operational risk, legal risk, compliance risk, currency risk, exchange rate risk, and sovereign risk are also important considerations, each representing various operational, legal, financial, and geopolitical factors that can impact investment returns.
For the student's question, the correct option that lists the major categories of investment risk that must be considered is: A) Market risk, credit risk, and liquidity risk.