Question
Answer all multiple-choice questions by clearly marking your answer. Assume all bonds are semi-annual pay, have whole years to maturity, and have face (or principal
Answer all multiple-choice questions by clearly marking your answer. Assume all bonds are semi-annual pay, have whole years to maturity, and have face (or principal values) of $1000.
Despite the safety associated with fixed income instruments, you are discussing risks of bonds with your investment advisor. You discuss the likelihood of a bond issuer not being able to repay the bond at maturity or even making interest payments. He, on the other hand, discusses details about the risk to the price of the bond if interest rates change. What risks are each of you discussing?
a. The advisor is discussing credit risk, and you are discussing default risk.
b. The advisor is discussing interest rate risk, and you are discussing credit risk.
c. The advisor is discussing credit risk, and you are discussing interest rate risk.
d. The advisor is discussing interest rate risk, and you are discussing idiomatic risk.
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