In: Finance
Which of the following are correct?
I. If expected inflation increases, investors will consider selling
bonds as the real value of this investment will decrease and bond
yields should increase.
II. Reinvestment risk occurs when interest rates decrease so that
coupons from a bond are reinvested at a lower rate than originally
expected.
III. If interest rates are expected to increase, an investor should
consider selling long-maturity bonds and buying short-maturity
bonds to decrease portfolio duration.
IV. If the risk of default on a bond already issued by a company is
expected to decrease, investors should consider selling that bond,
as the discount rate will decrease.
The correct answer is:
Group of answer choices
I and III only
II and III only
III and IV only
All statements except IV
I and II only
The following statements are correct : -
I. If expected inflation increases, investors will consider
selling bonds as the real value of this investment will decrease
and bond yields should increase.
II. Reinvestment risk occurs when interest rates decrease so that
coupons from a bond are reinvested at a lower rate than originally
expected.
III. If interest rates are expected to increase, an investor should
consider selling long-maturity bonds and buying short-maturity
bonds to decrease portfolio duration.
Therefore, the correct option is option 4. All statements except IV