Gill, Madura. Personal Finance, 4th Canadian Edition 2019. p 323.
- Your current investment portfolio is equally diversified across stocks, bonds, and real estate. You have decided to reposition your portfolio based on your expectations about economic conditions. For the upcoming year, you expect stock market conditions to be weak, interest rates to decrease, and real estate conditions to be unfavourable. Which of the follow- investments would you most likely add to your portfolio?
a. A bond mutual fund containing bonds with short maturities
b. A stock mutual fund
c. A bond mutual fund containing bonds with long maturities
d. A real estate investment trust (REIT) fund
Answer on p 519 says c. Why?
Why isn't the answer a?
Because "interest rates to decrease"? If you buy a long-term bond now, you get the higher (compared to later) interest rate now. But if you buy a short-term bond, you must buy a new bond more quickly, and that new bond will have a lower interest?