Question

max is willing to take on a little risk when she buys a bond, but she wants to be compensated for her risk with an elevated interest rate. what kind of bond should she buy? ○ subordinated ○ zero - coupon ○ convertible ○ inflation - linked

Explanation:

To determine the bond Max should buy, we analyze each option:

• Subordinated bonds: These have lower priority in repayment (higher risk) and typically offer higher interest rates to compensate for the added risk. This matches Max's desire for a little risk with elevated interest.
• Zero - coupon bonds: They don't pay periodic interest but are sold at a discount. The return is from the difference between purchase price and face value, not about risk - based interest rate elevation for taking on risk.
• Convertible bonds: They can be converted to stock. Their return is tied to equity potential, not primarily about risk - based interest rate compensation for bond - specific risk.
• Inflation - linked bonds: Their principal and interest adjust with inflation. They are more about inflation protection than compensating for taking on bond - related risk with higher interest rates.

So, subordinated bonds fit Max's criteria.

Answer:

A. Subordinated