Suppose you owned a portfolio consisting of $250,000 worth of long-term U.S. government bonds.
a. Would your portfolio be riskless?
b. Now suppose you hold a portfolio consisting of $250,000 worth of 30-day Treasury bills. Every 30 days your bills mature, and you reinvest the principal ($250,000) in a new batch of bills. Assume that you live on the investment income from your portfolio and that you want to maintain a constant standard of living. Is your portfolio truly riskless?
c. Can you think of any asset that would be completely riskless? Could someone develop such an asset? Explain.