Which of the following statement completions is CORRECT? If the yield curve is upward sloping,then the marketable securities held in a firm's portfolio,assumed to be held for emergencies,should
A) consist mainly of long-term securities because they pay higher rates.
B) consist mainly of short-term securities because they pay higher rates.
C) consist mainly of U.S.Treasury securities to minimize interest rate risk.
D) consist mainly of short-term securities to minimize interest rate risk.
E) be balanced between long- and short-term securities to minimize the adverse effects of either an upward or a downward trend in interest rates.

Question

Quizplus · Accepted Answer

If the yield curve is upward sloping, it means that long-term interest rates are higher than short-term interest rates. Therefore, investing mainly in short-term securities will allow the firm to earn higher rates while minimizing interest rate risk. Long-term securities may be subject to larger changes in price due to fluctuations in interest rates, which could result in losses if the securities need to be sold before maturity.

Which of the Following Statement Completions Is CORRECT? If the Yield