Ch 07: Assignment - Bonds and Their Valuation 8. Risks of investing in bonds 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 VALUES 1750 7. 1500 ited 1355 1000 Year Band 750 500 16 Verbund 250 20 12 16 INTEREST RATE Based on the graph, which of the coming statements is true The 1-year hond na more interest rate risk 20 II 4) 00 73 E F4 13 78 12 110 912 $ % A & + 07: Assignment - Bonds and Their Valuation BOND VALUESI 2000 1750 1500 13 1000 1-Year Bond 750 500 10-Year Band D 12 TA 30 INTEREST HATE IN Based on the graphs, which of the following statements is true? The year bond has more interest rates The 10-year bond has more interest rate risk Both Donds have equal interest rate risk Frank Tanowi one's come whout his intentaroviding with a stay come every year ware that internet 80 000 F3 DOO FS II F3 0 FB 19 G 110 The 1-year bond has more interest rate risk The 10-year bond has more interest rate risk Both bonds have equal interest rate risk Neither bond has any interest rate risk. A Frank Barlowe is retiring soon se he's concerned about his investments providing him with a steady income every year. He's aware that if interest rates the potential earnings power of the cash flow from his investments will increase in particular, he is concerned that a decine in interest rates might lead to annual income from his investments. What kind of rink's Frank moet concerned about protecting against O Reinvestments Interest raten Answer the following question based on your understanding of interest rate risk and reinvestments True or Faiset Asuming all else is equal, the shorter bond's maturity, the more price will change in response to a given change in interest rates OTH