Products & Their RisksQuestion 174 of 398
A conservative client wants to minimize credit risk and default risk in the fixed-income portion of her portfolio. Which security best fits that goal?
a.A high-yield ('junk') corporate bond
b.Commercial paper from a lower-rated company
c.A BBB-rated revenue bond
d.A short-term U.S. Treasury bill
Explanation
A U.S. Treasury bill is backed by the full faith and credit of the U.S. government and is considered essentially free of credit and default risk, making it the best match for a client who wants to minimize those risks. High-yield bonds and lower-rated commercial paper carry substantial default risk, and even a BBB revenue bond has more credit risk than a Treasury. The trade-off is that the safest security typically offers the lowest yield.
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