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

Question

Quizplus · Accepted Answer

An upward sloping yield curve suggests that long-term interest rates are higher than short-term rates. To avoid interest rate risk, a firm should hold short-term securities, as their prices are less sensitive to interest rate changes.

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