If You Expected Interest Rates to Rise, You Would Prefer

question 114

Multiple Choice

If you expected interest rates to rise, you would prefer to own bonds with

• A) short maturities and low coupons.
• B) long maturities and high coupons.
• C) long maturities and low coupons.
• D) short maturities and high coupons.
• E) None of these are correct.

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Definitions:

Cash Equivalents

Temporary investments with high liquidity that can be quickly converted into precise cash amounts and carry minimal risk of fluctuating in value.

Marketable

Refers to assets or securities that are easily bought or sold in the market because of their high demand, liquidity, or both.

Bid Price

The highest price a buyer is willing to pay for a security or asset.

Treasury Bill

A short-term government security issued at a discount from the face value and matures at par, providing a return to the holder at maturity.