SIE Exam Question 489: Answer and Explanation

Question: 489

An investor has a conservative attitude toward investing and is seeking to invest $100,000 into an instrument that will provide current income and the most protection from interest rate risk. You would most likely recommend which of the following?

• A. A portfolio of T-bills.
• B. Bankers' acceptance.
• C. Treasury STRIP.
• D. Ginnie Mae pass-through certificate.

Correct Answer: A

Explanation:

A: An investor seeking protection from interest rate risk will most likely be best suited for a portfolio of Treasury bills. As the bills mature, the investor can roll over the position into newly issued bills with new interest rates.