In periods when the risk-free interest rate ____ substantially, the required rate of return by bondholders ____, and most bond portfolios managed by pension funds perform ____.

Question

Quizplus · Accepted Answer

In periods when the risk-free interest rate declines substantially, the required rate of return by bondholders also declines. As a result, most bond portfolios managed by pension funds perform well. Option A and D are incorrect because in these options the required rate of return by bondholders increases, which would adversely impact bond portfolios. Option B is incorrect because if the risk-free interest rate declines, the required rate of return by bondholders should also decline, not increase.

In Periods When the Risk-Free Interest Rate ____ Substantially, the Required