Question

Which of the following statements about Treasury bonds is the most accurate? Treasury bonds are completely riskless. Treasury bonds have a very small amount of default risk, so they are not completely riskless. Treasury bonds are not completely riskless, since their prices will decline when interest rates rise. Based on the information given in the following statement, answer the questions that follow: In July 2009, Walmart sold 100 billion yen of five-year samurai bonds. Lead managers in the deal were Mizuho Securities, BNP Paribas, and Mitsubishi UFJ Securities. Who is the issuer of the bonds? Walmart BNP Paribas Mitsubishi UFJ Securities What type of bonds are these? Municipal bonds Corporate bonds Government bonds

Answer 1

Answer: 1. Treasury bonds are not completely riskless, since their prices will decline when interest rates rise.

2. Walmart

3. Corporate bonds

Explanation:

1. Indeed even though Treasury bonds have a very low risk rating, they are not completely risk-less. They have a very low risk rating because they will always be honoured (US T - bonds that is) and so that eliminates the default risk. However, they are still exposed to maturity risk as well as inflation risk for the most part. This means that as interest rates rise therefore, their prices drop making them just a little but risky.

2. Walmart issued the bonds making them the issuer. The rest of the names are Underwriters.

3. Since the bonds were issued by a Corporation being Walmart, the bonds are Corporate Bonds.