Reference no: EM133118508
1. Over the past 10 years, interest rates in the United States have been very low by historical standards, which has reduced the rate of return for bondholders. As a result, investors have been forced to assume more risk to chase higher returns.
A. Given the current interest rate environment, what type of bond do you think offers the safest investment?
B. What type of bond do you think presents the greatest risk?
C. What type of bond do you think would be the best investment? Why?
2. Interest rate risk is the risk related to changes in interest rates that cause a bond's total return to differ from the promised yield or yield-to-maturity.
A. What type of interest rate risk do you think is the most important to manage: 1) price risk, or 2) reinvestment risk? Why?
B. How do investors and financial institutions manage interest rate risk?
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