Phillip is a mortgage broker, who is paid by commission. When interest rates decline, he does a lot of business and earns a lot of money, as more people buy houses or refinance their mortgages. But when interest rates rise, business falls substantially. To diversify, Phillip should choose investments thatA provide a higher return than the market averageB provide a lower return than the market averageC pay higher returns when interest rates rise and lower returns when interest rates fallD pay lower returns when interest rates rise and higher returns when interest rates fall

Question

Business

Raquel Hicks

22 May, 21:56

Phillip is a mortgage broker, who is paid by commission. When interest rates decline, he does a lot of business and earns a lot of money, as more people buy houses or refinance their mortgages. But when interest rates rise, business falls substantially. To diversify, Phillip should choose investments thatA provide a higher return than the market averageB provide a lower return than the market averageC pay higher returns when interest rates rise and lower returns when interest rates fallD pay lower returns when interest rates rise and higher returns when interest rates fall

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Answers (1)

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Gilmore · Answer 1

C) pay higher returns when interest rates rise and lower returns when interest rates fall

Explanation:

If currently Phillip earns a lot of money when interest rates decrease, but earns very little when they increase, he should try to invest in assets that provide opposite returns, i. e. high returns when interest rates increase. That way when he isn't earning a lot of money with his business, he will at least be earning money with his investments.