Question

What does a shorter maturity schedule provide protection from?

1) Contraction risk
2) Extension risk
3) Interest rate risk
4) Credit risk

Answer 1

A shorter maturity schedule provides protection from extension risk.

Step-by-step explanation:

A shorter maturity schedule provides protection from extension risk. Extension risk is the risk that interest rates will rise, causing the maturity of a bond to be extended. When a bond has a shorter maturity schedule, it is less exposed to fluctuations in interest rates and therefore less vulnerable to extension risk. It's important to note that while a shorter maturity schedule provides some protection, it does not eliminate all types of risks associated with bonds.