To diversify,a homeowner with a variable-rate mortgage should choose investments that
A)pay higher returns when interest rates rise and lower returns when interest rates fall.
B)pay lower returns when interest rates rise and higher returns when interest rates fall.
C)provide a higher return than the market average.
D)provide a lower return than the market average.

Question

Quizplus · Accepted Answer

A homeowner with a variable-rate mortgage should choose investments that pay higher returns when interest rates rise and lower returns when interest rates fall. This will help to balance out the impact of interest rate changes on their mortgage payments. If interest rates rise, their mortgage payments will increase, but the higher returns from their investments will offset some of that cost. Conversely, if interest rates fall, their mortgage payments will decrease, but the lower returns from their investments will also decrease the income generated. Therefore, the best way to diversify is to choose investments that have an inverse relationship with interest rates.

To Diversify,a Homeowner with a Variable-Rate Mortgage Should Choose Investments