SIE Exam Question 454: Answer and Explanation

Question: 454

An investor would expect to realize the largest capital gain by buying bonds that are:

• A. Long-term when rates are high.
• B. Short-term when rates are low.
• C. Short-term when rates are high.
• D. Long-term when rates are low.

Correct Answer: A

Explanation:

A: An investor would expect to realize the largest gain by purchasing bonds when rates are high. The bond with the longest time left to maturity will become worth the most as interest rates fall.