Financial Planner

Category - General Principles of Financial Planning

In economics, when should an investor avoid interest-sensitive securities and long-term debt instrument that pay fixed amounts of interest?
  1. During Inflation
  2. During Deflation
  3. During Recession
  4. During Disinflation
Explanation
Answer: A - During inflation an investor should avoid interest-sensitive securities and long-term debt instrument that pay fixed amounts of interest. Instead, investors should acquire shot-term instruments whose yields will increase with the rate of inflation. The expectations of an inflationary environment suggest that investors should stress common stocks of firms whose asset bases will be enhanced by increased asset values, such as oil, metal, and land. Stock from firms lacking assets should be avoided.
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