Why is a barbell strategy more flexible than a laddered strategy if an investor anticipates a decline in interest rates?
The barbell strategy refers to the strategy of investment for the portfolio with fixed income. It consists of both long term bonds and the short term bonds for maintaining the balance between the risk and the reward associated with the bonds.
Answer and Explanation:
The barbell strategy is more flexible than a laddered strategy if an investor anticipates a decline in the interest rate because of the following reasons:-
- During the decrease in the interest rate, the long term portfolio is desirable, and all the short term portfolios will be liquidated and invest in long term portfolio. As a result, the investor of the ladder strategy will suffer from substantial loss.
- The barbell strategy is flexible as the alterations can be made in the portfolio to liquidate the bonds, but the ladder strategy is not flexible.
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from Introduction to Business: Homework Help ResourceChapter 4 / Lesson 16