Assume that you have a short investment horizon (less than oneyear). You are con
ID: 2662040 • Letter: A
Question
Assume that you have a short investment horizon (less than oneyear). You are considering two investments: a one-year Treasurysecurity and a 20-year Treasury security. Which of the twoinvestments would you view as being more risky? Explain youranswer.
Assume that you have a short investment horizon (less than oneyear). You are considering two investments: a one-year Treasurysecurity and a 20-year Treasury security. Which of the twoinvestments would you view as being more risky? Explain youranswer.
Explanation / Answer
The20-year Treasury Security will have a higher duration than the 1year Treasury security, and it would be more risky because it hasmore time to fluctuate with the market. When interest rates go up,bonds such as treasuries will typically go down and interest ratesusually climb very slowly. A one year treasury security wouldbe much less risky because it would react to the market slowly aswell.