Asked by Adeyemi Adeyolanu on Jun 20, 2024
Verified
Everything else equal, if you expect a larger interest rate increase than other market participants, you should ________.
A) buy long-term bonds
B) buy short-term bonds
C) buy common stocks
D) buy preferred stocks
Interest Rate
The expense, indicated as a percentage of the principal, that a borrower pays to a lender for accessing assets.
Market Participants
Individuals or institutions that engage in buying and selling securities within financial markets.
Long-Term Bonds
Bonds with a maturity period typically longer than 10 years, offering the possibility of higher yields but greater risk due to the extended timeframe.
- Discern how economic scenarios affect the allocation of investments in different industries.
Verified Answer
OH
Olivia HowingtonJun 24, 2024
Final Answer :
B
Explanation :
If you expect a larger interest rate increase than other market participants, you should buy short-term bonds. This is because short-term bonds have lower interest rate risk than long-term bonds, meaning that their prices will be less affected by a rise in interest rates. Buying common or preferred stocks is not necessarily related to interest rate expectations.
Learning Objectives
- Discern how economic scenarios affect the allocation of investments in different industries.