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posted by  Sahron on 10/12/2009 11:00:46 PM  |  status: Closed  |  Earned Karma: 25

Introduction to Finance

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N/A N/A N/A N/A 10/16/2009 at 5:00:00 PM
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Assume that you have a short investment horizon (less than one year). You are considering two investments: a one-year Treasury security and a 20-year Treasury security. Which of the two investments would you view as being more risky?   Explain your answer.
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posted by devis on 10/12/2009 11:52:31 PM  |  status: Live
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               The 20-year Treasury Security will have a higher duration than the 1 year Treasury security, and it would be more risky because it has more time to fluctuate with the market. When interest rates go up, bonds such as treasuries will typically go down and interest rates usually climb very slowly. A one year treasury security would be much less risky because it would react to the market slowly as well.

   
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posted by blackrose420 on 10/14/2009 1:02:40 AM  |  status: Live
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The 20-year Treasury security is more risky because it has a longer time to maturity and a longer-duration bond is more sensitive to changes in interest rates than a shorter-duration bond.  Having said that, it must be noted though that Treasury Bonds in general are almost risk free as they are the most secure type of securities.

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