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But isn't it because when you invest in government bonds it's riskfree and therefore is Lokey wrong?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter20: Hybrid Financing: Preferred Stock, Warrants, And Convertibles

Section: Chapter Questions

Problem 6MC

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Are risk-free rates really risk free?What are the risks of government securities?Why do we still use government bond yields as our risk-free rates if they still carry risk?
Are government bonds ALWAYS less risky than corporate bonds? If yes, please explain. If no, please explain and give an example of an industry whose bonds are less risky then the government's
Which of the following might discourage covered interest arbitrage even if interest rate parity does not exist? A. transaction costs. B. political risk. C. differential tax laws. D. all of the above. E. none of the above.
The company's bank won't lend it any more money than it already has, and investment bankers have said that debentures are out of the question. The treasurer has asked you to do some research and suggest a few ways in which bonds might be made attractive enough to allow the company to borrow. What does providing a restrictive indenture limiting the risk in future undertakings do? How does it make the bonds more attractive? Explain in great detail.
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