Final answer:
Both government bonds and investment-grade corporate bonds have interest risk, which is influenced by changes in the general interest rates and affects the value of bonds.
Step-by-step explanation:
An investor who buys a bond is looking for a rate of return on their investment. The return on bonds reflects the risk involved with lending money to the issuer; typically, higher risk is associated with potentially higher rewards, while lower risk generally corresponds to lower returns. Considering the risks associated with bond investment, one of the risks that both government bonds and investment-grade corporate bonds share is interest risk. Interest risk is affected by changes in the overall interest rates in the economy, which can impact the market value of bonds.
The interest rate of a bond is usually made up of three components:
Between options A. Credit, B. Interest, C. Market, and D. Inflation, interest risk is the correct answer as it is a factor that affects both government bonds and investment-grade corporate bonds.