Samantha is an investor with a low tolerance for risk.

Q. 1

Samantha is an investor with a low tolerance for risk. She has heard

that bonds offer low risk but she is confused as the returns are all very

different. She wants to invest in 4 bonds and has narrowed her search to

8 corporate bonds. Samantha has organized her choices into 4 groups.

Within each group, all terms and conditions are identical except for the

feature mentioned. Help Samantha to pick one bond from each group

which would offer her the least risk. You must offer a brief explanation

to support your decision. Your choices are as follows:

Group 1

Bond A – sinking fund

Bond B – no sinking fund

Group 2:

Bond C – call provision

Bond D – no call provision

Group 3

Bond E – contains a covenant restricting payment of dividends in any

year to the current year’s net income, and a covenant to provide annual

audited financial statements

Bond F – contains a covenant to provide annual audited financial

statements

Group 4

Bond G – convertible Bond

Bond H – non-convertible Bond