Why Are Government Backed Securities NOT Risk Free

question 54

Multiple Choice

Why are government backed securities NOT risk free?

• A) As inflation fluctuates in time, the value of the principal amount will fluctuate.
• B) The amount of the interest payment may vary over time
• C) The government is free to ignore its guarantee of principal payments.
• D) As market interest rates fluctuate, the value of the security will move in an inverse direction regardless of the government's guarantees.

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Definitions:

Ratio Scale

A scale of measurement where there is a true zero and equal intervals, allowing for the comparison of magnitudes and the performance of mathematical operations.

Statistical Inference

The process of drawing conclusions about a population’s parameters based on a sample taken from the population.

Descriptive Statistics

Statistical techniques used to summarize, show, and describe the basic features of data sets, providing simple summaries about the sample and measures.

Ratio Scale

A scale where there is a true zero point, allowing for the measurement of ratios between data points.