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Determining the current market environment

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A friend of yours tells you that she is extremely risk averse and would like to invest her money avoiding all risks.

a. Her financial advisor recommends that she invests all her savings in US Treasury Bills. Would you agree with the advisor, and why?

Another friend of yours is undecided between two US bonds that differ only in their coupon rates. She informs you that her financial advisor told her to invest in the bond with lower coupons. Your friend is puzzled because she thinks that the most financially sound choice would be to buy the bond with higher coupons, such that she gets more money at fixed time periods.

b. In the current market environment, and assuming that interest rates will stay constant, would you agree with i) your friend, ii) the advisor, iii) both, or iv) none of them? Why?

Reference no: EM133113575

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