Rex 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,Rex 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

Since Rex's income is heavily dependent on interest rates, he should choose investments that provide higher returns when interest rates rise and lower returns when interest rates fall. This will help him balance out the losses he suffers during times of rising interest rates, as the profits from these investments will offset his drop in commission. Investment options like inflation-protected bonds, energy stocks, and real estate investment trusts (REITs) are good options to consider. By diversifying into these instruments, Rex can create a portfolio that is less reliant on interest rates and provides a more steady income stream.

Rex Is a Mortgage Broker,who Is Paid by Commission