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CORPORATE FINANCE AND POLICY MBA 472004 CASE STUDY 1: RISK and RETURN

CORPORATE FINANCE AND POLICY MBA 472004 CASE STUDY 1: RISK and RETURN

Why is the Dubai Bond’s return independent of the state of the economy? Do Dubai Bonds promise a completely risk-free return?
 Dubai Bonds will return the promised 8% regardless of the economy because it had a risk free, 8% return will be constant for all states of the economy.
 No, Dubai Bonds do not provide a completely risk-free return, as they are still exposed to inflation. Although, very little unexpected inflation is likely to occur over such a short period of time,
 Or, it will not not completely risk free return because the return consists of real risk free rate and inflation, if any state of inflation recorded then the real return will decrease.
 Dubai Bonds are risky in terms of reinvestment rate risk.
 Dubai Bonds are risk-free in the default sense of the word

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