Max is a mortgage broker, who is paid by commission. When interest rates decline, he does a lot of business and earns a lot of money, as more people buy houses or refinance their mortgages. But when interest rates rise, business falls substantially. To diversify, Max should choose investments that
A) provide a higher return than the market average.
B) provide a lower return than the market average.
C) pay higher returns when interest rates rise and lower returns when interest rates fall.
D) pay lower returns when interest rates rise and higher returns when interest rates fall.

Question

Quizplus · Accepted Answer

By choosing investments that pay higher returns when interest rates rise and lower returns when interest rates fall, Max can offset the impact of changes in interest rates on his income. This diversification strategy helps him to earn income even when his primary source of income (mortgage brokerage) is negatively affected by interest rate changes.

Max Is a Mortgage Broker, Who Is Paid by Commission