A life insurance firm wants to minimize its interest rate risk, and it is planning on paying out $250,000 in 5 years. Which one of the following investments best matches its goal?

A) high-yield utility stocks
B) 5-year zero-coupon bonds
C) 10-year coupon bonds
D) money market investments rolled over as needed

Interest Rate Risk

The potential for investment losses due to changes in interest rates.

Zero-Coupon Bonds

Bonds that do not pay periodic interest and are issued at a significant discount to their face value, maturing at par value.

Life Insurance

A contract between an insurer and an insured, where the insurer promises to pay a designated beneficiary a sum of money upon the death of the insured person.