2. Frank Bernanke is retiring soon, so he is very concerned about his investments providing him steady income every year. In particular, he is concerned that a decline in interest rates might lead to less annual income from his investments. What kind of risk is Frank most concerned about protecting against?

A Reinvestment Rate Risk

B Interest Rate Risk

3. Which of the following bond poses the biggest risk to Frank's investment goals?

A 30 year, 0% coupon bond

B 20 year, 0% coupon bond

C 20 year, 10% coupon bond

D 20 year, 10% coupon bond that may be called in 10 years

E 30 year, 10% coupon bond

Interest rate and reinvestment rate risk The graph below describes the price of two 10% annual coupon bonds. The curves on the graph show the price of each bond at various interest rates. According to the graph, which bond has more interest rate risk? The 1-year bond Neither bond has any interest rate risk They have equal interest rate risk The 10-year bond