Question

Of these choices, a risk-adverse investor who prefers to minimize interest rate risk is most apt to invest in:
3-year, zero coupon bonds.
5-year, 7 percent coupon bonds.
20-year, 6 percent coupon bonds.
20-year, zero coupon bonds.
2-year, 7 percent coupon bonds.

Answer 1

A risk averse investor is an investor who prefers lower returns with known risks rather than higher returns with unknown risks.

The answer is 2 year,7 percent coupon bonds.