which of the following investments is considered to be default risk-free? 1. common stock 2. currency...

which of the following investments is considered to be default risk-free? 1. common stock 2. currency optiONS 3. TREASURY BILLS 4. AAA RATED CORPORATE BONDS

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Expert Solution

Among the four options listed, Treasury Bills (Option 3)are considered to be default risk-free. They are extremely liquid in nature and have a negligible risk of default. They carry assured Yield and are completely backed up by the Government.

1. Common Stocks: The prices of common stocks are regularly affected by factors such as Industry Conditions, Economic Conditions, Political Conditions and various other factors. Thus, They are subject to a lot of risks.

2.AAA Rated Corporate Bonds: They have high creditworthiness due to the rating(AAA rated). They give considerable returns too since they carry some risk. They may perform better than Treasury bonds but are risky.

3. Currency Options: Currency Options are affected by the factors like current value of the currency. The current value of the currency is affected by factors like trade between countries, Inflation rates, Political Stability etc. They carry a fair amount of risk.

jeff jeffy answered 1 year ago

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