9 A plain vanilla regular no embedded option nonamortizing b

9. A plain vanilla (regular, no embedded option) non-amortizing bond has more _____ risk and less _______ risk compare to an amortizing bond with sinking fund provision, assume other features are the same.
a. Credit ; interest rate
b. Foreign exchange; liquidity
c. Interest rate; credit
d. Interest rate; reinvestment
e. None of the above

Solution

Ans is option a - credit , interest rate

Amortizing sinking fund provision has less credit risk as there is redemption periodically principal reduces till maturity. Plain vanilla bonds make the principal payment at the maturity date.