Qusetion: Samantha is an investor with a low tolerance for risk. She has heard that bonds offer low risk but she is confused as the returns are all very different. She wants to invest in 3 bonds and has narrowed her search to 8 corporate bonds. Samantha has organized her choices into 3 groups. Within each group, all terms and conditions are identical except for the feature mentioned. Help Samantha to pick one bond from each group which would offer her the least risk. You must offer a brief explanation to support your decision. Your choices are as follows:
Group 1 Bond A - sinking fund Bond B - no sinking fund
Group 2: Bond C - call provision Bond D - no call provision
Group 3 Bond E - contains a covenant restricting payment of dividends in any year to the current year's net income, and a covenant to provide annual audited financial statements Bond F - contains a covenant to provide annual audited financial statements