Which bond portfolio where all investment is made up front would be LEAST negatively affected by a sharp rise in interest rates? A. LadderB. BulletC. BarbellD. Balloon

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Delilah Hamilton

13 February, 10:12

Which bond portfolio where all investment is made up front would be LEAST negatively affected by a sharp rise in interest rates? A. LadderB. BulletC. BarbellD. Balloon

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Answers (1)

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Humberto Berry · Answer 1

C. Barbell

Explanation:

The barbell portfolio has only 2 maturities

One is a very short term and a very long term

The bonds with longer term give a higher yield but they have a higher interest rate risk.

But in the very short term bond since the maturity time is less thus the bonds will mature sooner and the proceeds can be reinvested at higher rates.