- CFA Exams
- CFA Level I Exam
- Study Session 17. Portfolio Management (2)
- Reading 46. Economics and Investment Markets
- Subject 3. The Yield Curve and the Business Cycle
CFA Practice Question
Which one is a more useful consumption hedge for investors?
B. A short-term government bond
C. Neither type of bond can serve as a useful consumption hedge for investors.
A. A long-term government bond
B. A short-term government bond
C. Neither type of bond can serve as a useful consumption hedge for investors.
Correct Answer: B
Government bonds tend to pay off in bad times. Longer-dated government bonds tend to be less negatively correlated with consumption and therefore represent a less useful consumption hedge for investors.
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