Portfolio Managers Who Anticipate an Increase in Interest Rates Should

question 86

Multiple Choice

Portfolio managers who anticipate an increase in interest rates should

• A) act to keep the duration constant.
• B) decrease the portfolio duration.
• C) increase the portfolio duration.
• D) assume higher risk in the market.
• E) invest in junk bonds.

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Definitions:

Investment

The allocation of resources, usually monetary, into assets or projects expected to generate future profits or income.

Equilibrium Interest

The interest rate at which the demand for funds equals the supply of funds, balancing savings and investment in the economy.

Loanable Funds

Funds available for borrowing, influenced by savings and investments, which affect interest rates and economic activity.

Credit Rating

An assessment of the creditworthiness of a borrower in terms of their ability to repay a loan or debt.