Question: You predict that interest rates will be going up in the near future. How do you make the best use of this informed prediction?Buy a
You predict that interest rates will be going up in the near future. How do you make the best use of this informed prediction?Buy a longterm bond today to limit your price risk.Start a project today because interest rate going up will have a positive effect on your company's firm value.Buy stocks today because if the riskfree rate goes up the cost of equity will go up which means stock price will go up and you'll be able to sell the stock for more than what you pay for today.Convince the CFO of your firm to issue a longterm conventional bond today to lock in the low interest rate instead of issuing a callable bond.Reinvestment risk will go up when interest rates go up so it's best to buy longterm bonds today even if you need the money next year.
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