Question

"A 25-year old client with a low risk tolerance wishes to invest in bonds. The client has invested in equities before, but has no experience investing in bonds. The BEST recommendation would be:"

Answer 1

Answer: AA-rated short-term bonds

Explanation:

The options to the question are:

A. BB-rated short-term bonds

B. BB-rated intermediate-term bonds

C. AA-rated short-term bonds

D. AA-rated long-term bonds

From the question, we have been informed that the client has a low risk tolerance and wants to invest in bond.

Based on this scenario, to reduce the risk of the interest rate risk, it should be noted that short-term maturities are more appropriate than choosing the long-term maturities.

Therefore, the best recommendation will be AA-rated short-term bonds.