Answered step by step
Verified Expert Solution
Question
1 Approved Answer
You hear on TV a financial advisor making the following statement: Given the current uncertainty in the interest rates e.g. increase/decrease of Fed rates ,
You hear on TV a financial advisor making the following statement:
Given the current uncertainty in the interest rates e.g. increase/decrease of Fed rates , investing in long-term bonds is not good idea for investors concerned with the price volatility of their portfolio. They should better invest in short-maturity bonds if the goal is to minimizing price swings following changes in yields.
The advisor has in mind sudden increases or decreases about the interest rates.
- Why is this statement is backed up, at least partially, by economic reasoning? Offer a justification for why long-term bonds might be more risky than short-term bonds. [1 point]
- Why is the statement not completely right? Explain what the advisor might be missing. [2 points]
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started