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

Question

Quizplus · Accepted Answer

When the yield curve is upward sloping, interest rates for longer-term securities are higher than those for shorter-term securities. This means that the market value of longer-term securities is more sensitive to changes in interest rates than that of shorter-term securities. To minimize the interest rate risk, the firm should mainly invest in short-term securities.

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