Question

Investing in bonds! PLS HELP


1.) Ralph wishes to protect his investment from inflation. He buys a zero coupon bond. Why is this investment a bad choice for Ralph?

2.) Allison buys a Greek Treasury bond. The Greek government announces that it is defaulting on its debt. What options does Allison have to recover her money?

3.) Why are municipal bonds less attractive to foreign bondholders?

4.) Why does building a ladder of bonds protect against changes in interest rates?

Answer 1

1) A zero coupon bond is a bad choice for Ralph because it is a bond bought at a very deep discount but does not earn any interest. He will only get the face value of the bond when it matures.

2) Defaulting means being unable to pay for the debt in time. They will pay for the debt when they have the available funds to do so. Allison will just have to wait until the Greek government has enough money to cover their debts.