To reduce interest rate risk and smooth out interest rate fluctuations when purchasing certificates of deposit (CDs) you can engage in
A)CD laddering.
B)CD layering.
C)grace period management.
D)money-market arbitrage.

Question

Quizplus · Accepted Answer

CD laddering involves purchasing multiple CDs with staggered maturity dates. This helps to reduce interest rate risk because the investor can reinvest a portion of their portfolio at different times, potentially taking advantage of higher interest rates, rather than having to reinvest all of their funds at once and potentially being subjected to lower interest rates. CD layering and grace period management are not common strategies for reducing interest rate risk, and money-market arbitrage is a strategy for taking advantage of differences in interest rates between different financial instruments, rather than reducing risk.

To Reduce Interest Rate Risk and Smooth Out Interest Rate