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The following bonds and liabilities are given: - Bond A : A zero-coupon bond with a face value of $100 and a time to maturity
The following bonds and liabilities are given: - Bond A : A zero-coupon bond with a face value of $100 and a time to maturity of 5 years. - Bond B: A zero-coupon bond with a face value of $100 and a time to maturity of 12 years. - Liability X : A one-time liability maturing in 10 years with the present value of $100. Suppose you have the liability X and want to meet your liability by investing in bond A. Which of the following statements about the risk(s) that you will face is correct? A. Reinvestment risk; and she is concerned about potential interest rate decrease at the end of year 5 B. Reinvestment risk; and she is concerned about potential interest rate increase at the end of year 5 C. Liquidity risk; and she is concerned about potential interest rate increase at the end of year 10 D. Both reinvestment risk and liquidity risk; and she is concerned about no interest rate change at the end of year 10 E. Liquidity risk; and she is concerned about potential interest rate decrease at the end of year 10
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