You Expect Interest Rates to Decline and Wish to Capitalize

question 229

Multiple Choice

You expect interest rates to decline and wish to capitalize on the anticipated changes in bond prices. To realize your maximum gain, all else constant, you should purchase _____ bonds.

• A) Short-term; low coupon.
• B) Short-term; high coupon.
• C) Long-term; zero-coupon.
• D) Long-term; low coupon.
• E) Long-term; high coupon.

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Definitions:

Utility

The total satisfaction received from consuming a good or service; often used in economic analysis to understand consumer behavior.

Auto Repairs

Refers to the maintenance, servicing, and fixing of cars and other vehicles to ensure their proper functioning.

Gasoline

A liquid fuel made from petroleum and used primarily as fuel in internal combustion engines.

Chemical Weathering

The breakdown of rocks and minerals through chemical reactions with atmospheric agents such as oxygen, water, and acids, leading to the formation of new minerals and soil.