8. Risks of investing in bonds The higher the risk of a security, the higher its expected return will be. A bond's risk level is reflected in its yield, but understanding the different risks involved when investing in bonds is important. The following graph shows the relationship between interest rates and maturity for three security classes: US Treasury securities (USTS), AA-rated corporate bonds, and BBB-rated corporate bonds. Use the selection dropdown lists to correctly associate each curve with its corresponding security class: YIELD 0 5 10 15 20 25 30 YEARS TO MATURITY Frank Barlowe is retiring soon, so he's concerned about his investments providing him with a steady income every year. He's aware that if interest rates increase the potential earnings power of the cash flow from his investments will increase. 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? Reinvestment risk Interest rate risk Answer the following question based on your understanding of interest rate risk and reinvestment risk. True or False: Assuming all else is equal, long-term securities are exposed to higher interest rate risk than short-term securities. True False Grade it Now Save & Continue