A U.S. investor who purchases an option-free bond with a 7 percent coupon rate, maturing in 20 years, and issued by a U.S.-based company is most likely exposed to: A. volatility risk and credit risk. B. event risk and interest rate risk. C. volatility risk and yield curve risk. Correct Answer: B Logic: The investor faces event risk in a corporate bond and interest rate risk in a long-dated, fixed coupon bond. Can’t understand the logic. I thought answer is A.
I would say it is A and B.
The key word in the sentence is (Option Free). Which is why it would eliminate volitility risk which is mostly associated with embedded options. Increased voltility increases the value of your options in bonds. The answer is B.
Eagle eye!!! thanks chung
Ah so true. Thank you chung.da.neu.