Max Livingston, an investor in fixed income securities, wishes to accumulate a sum of $100,000 at the end of five years.

What amount would Max need to invest now in 5-year zero-coupon government bonds if the market rate of interest is 12% per annum?

Max can choose between the following securities: (i) zero coupon government bonds with a term to maturity of 10 years; (ii) a series of 180-day bank bills; and (iii) finance and industrial company debentures with coupon rates of 13 to 14% per annum and terms ranging from 3 to 8 years.

Required: for each of these types of securities explain the risks that are relevant to Max.

Assume that Max selects the finance and industrial company debentures. Advise him on how the risks that you have identified can be controlled.