You are about to recommend a fixed-income investment to a retired 58-year-old client who wants to obtain the maximum current income for the minimum amount of risk. You are reviewing the yield curve below to help make an appropriate decision.
Based upon your interpretation of the yield curve, what bond maturity should you recommend, and why?
A)
A bond with a maturity of less than five years, because the client is interested in current income rather than capital appreciation and is willing to accept only a minimum amount of risk
B)
A 10-year bond, because the current yield beyond that point does not increase enough to justify the additional interest rate risk of owning a bond with a longer maturity
C)
A 20-year bond, because that is the point at which the current yield is maximized for a client who wants to maximize current income
D)
A five-year bond, because retired clients who want to minimize interest rate risk should not have maturities exceeding five years