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The Advantages of Short-term Bonds if Interest Rates Rise

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If interest rates are expected to increase, should investors look to long-term bonds or short-term securities? Explain in your own words

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Solution Summary

This solution discusses the advantages of short-term securities over long-term bonds if interest rates are expected to rise.

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Investors should invest in short-term securities if they expect interest rates to rise. First, they will be locked into today's lower yields until the long-term bonds mature (i.e., they will miss the opportunity to reinvest the bond proceeds at a higher interest rate as rates ...

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