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Problem 2 Part 1 Other things equal, which of the following bonds has the highest interest rate risk? (Hint: you do not need
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Answer #1

Answer to Part 1 - To ascertain as to which bonds can be riskier we can adopt following two basis to -

a. Bonds prices are inversely related to interest rate i.e. higher the interest rate value of the bonds price will be lesser.

b. Corporate bonds are more riskier than Government bonds. As government can pay the liability by raising taxes however Corporate's will have to depend on their earning only.

Hence, C is having the highest interest rate risks.

Answer to Part 2 - is b.

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