Compare the risk of a 90-day unsecured promissory note issued by Southwest Airlines to a 20-year U.S.Government Treasury bond.

Question

Quizplus · Accepted Answer

The Treasury bond has a lower financial risk because it is backed by the U.S. government, which is considered a very secure investment. However, due to its long duration, it has a higher interest rate risk compared to a short-term promissory note like the one issued by Southwest Airlines. Interest rate risk is the risk that the value of a bond will decrease due to rising interest rates, which is more pronounced in long-term bonds.

Compare the Risk of a 90-Day Unsecured Promissory Note Issued