SIE Exam Question 48: Answer and Explanation

Question: 48

If interest rates are expected to rise in the near future, which of the following statements is true regarding duration?

• A. A longer duration would be preferred.
• B. A shorter duration would be preferred.
• C. There would be no preference regarding duration.
• D. A mid-term duration would be preferred.

Correct Answer: B

Explanation:

If interest rates are expected to rise in the near future, a shorter duration would be preferred. A longer duration would be preferred if interest rates are expected to fall.