smuggycfa

> So the answer is duration based, but even shorter
> duration is exposed, correct?

Yes, if you want the higher returns associated with bonds (relative to cash), you will need to take on a certain level of price risk.

>
> > Needing more money (or a higher return) is not
> a
> > valid reason for taking on increased risk.
>
> I'm assuming your making this statement based on
> the idea that other non bond investments will be
> riskier so bonds are the least of the "risk evils"
> despite the price risk?

Yes, generally a lower risk tolerance, indicates a higher allocation to fixed income, because they are less risky than equity investments. You could protect your bonds if you expected an increase in rates though, using options or something else, but of course you will be forgoing income in this case.

Why don't you buy your client some floaters? You won't have a problem with price risk with these, but you will have cash flow risk.