Which of the Following Bonds (Of Equal Maturity)would Have the Lowest

question 12

Multiple Choice

Which of the following bonds (of equal maturity) would have the lowest risk premium?

• A)U)S. government bonds
• B)German government bonds
• C)the bonds of a financially stable corporation, like IBM
• D)Bonds rated Aaa by Moody's
• E) junk bonds

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Definitions:

Fair-Value Hedge

A hedge that is used to mitigate the risk of changes in the fair value of an asset, liability, or an unrecognized firm commitment.

Cost of the Hedge

The expenditure associated with implementing and maintaining a hedge against financial risk.

Fair-Value Hedge

A hedge of the exposure to changes in fair value of an asset or liability or an identified portion of such an asset or liability that is attributable to a particular risk.

Exchange Gain

A profit arising from changes in foreign exchange rates that benefit the value of a company's foreign currency denominated assets or liabilities.