Conyers Bank holds U.S.Treasury bonds with a book value of $30 million.However,the U.S.Treasury bonds currently are worth $28,387,500.

If the portfolio manager wants to shorten the bank's asset maturity,what type of risk is she concerned about?
A)Credit risk.
B)Foreign exchange rate risk.
C)The risk of rising interest rates.
D)The risk of falling interest rates.

Question

Conyers Bank holds U.S.Treasury bonds with a book value of $30 million.However,the U.S.Treasury bonds currently are worth $28,387,500.

If the portfolio manager wants to shorten the bank's asset maturity,what type of risk is she concerned about?
A)Credit risk.
B)Foreign exchange rate risk.
C)The risk of rising interest rates.
D)The risk of falling interest rates.

Quizplus · Accepted Answer

If the portfolio manager wants to shorten the bank's asset maturity, she is concerned about the risk of rising interest rates. Shortening the asset maturity means that the bank will be able to reinvest the money sooner, but it also means that the investments will be subject to reinvestment risk if interest rates go up. This is why the portfolio manager is concerned about the risk of rising interest rates.

Conyers Bank Holds U