Assume bond portfolio managers actively manage their portfolios. If they expect interest rates to ____, they would shift toward ____.

Question

Quizplus · Accepted Answer

When bond portfolio managers expect interest rates to decrease, they would shift toward long-maturity bonds with zero-coupon rates because the prices of these bonds are more sensitive to changes in interest rates, potentially offering higher capital gains as interest rates fall.

Assume Bond Portfolio Managers Actively Manage Their Portfolios