Because of an expected rise in interest rates in the future,a banker will likely
A)make long-term rather than short-term loans.
B)buy short-term rather than long-term bonds.
C)buy long-term rather than short-term bonds.
D)make either short or long-term loans;expectations of future interest rates are irrelevant.

Question

Quizplus · Accepted Answer

When interest rates are expected to rise, the value of existing bonds falls, since new bonds will offer higher yields. Therefore, bankers prefer to buy short-term bonds, which will mature sooner, allowing them to reinvest the principal at the higher rates sooner than they would be able to with long-term bonds.

Because of an Expected Rise in Interest Rates in the Future,a