Question

Select the answer that lists the investments in the correct order from least risky to most risky

Select one: a. 5-year government bond, 5-year corporate bond, 2-year government bond. b. 2-year government bond, 5-year corporate bond, 5-year government bond. c. 2-year government bond, 5-year government bond, 5-year corporate bond. d. 5 year government bond, 2 year government bond, 5 year corporate bond.

Answer 1

Investing in a goverment bond involves no default risk but you do have the risk of loosing the opportunity cost. A 2 year govermnet bond in this case is considered less risky than a 5 year goverment bond. This is because in 5 years the interest rates can change making the bond less attractive than the alternative investment. Corporate bonds are always riskier than government bonds.

Hence, the correct order from least risky to most risky is-

C. 2-year goverment bond, 5-year government bond, 5-year corporate bond

Let me know in the comment section in case of any doubt.