A security with higher risk will have a higher expected return. A bond's risk level is reflected in its yield, but understanding the different risks involved when investing in bonds is important. The curves on the following graph show the prices of two 10% annual coupon bonds at various interest rates. BOND VALUE ($) 2000 1750 1500 1250 1000 750 500 250 0 8 12 INTEREST RATE (%) 1-Year Bond 10-Year Bond 16 20 ?

A security with higher risk will have a higher expected return. A bond's risk level is reflected in its yield, but understanding the different risks involved when investing in bonds is important. The curves on the following graph show the prices of two 10% annual coupon bonds at various interest rates