Question #5
Reading: Reading 39 Economics and Investment Markets
PDF File: Reading 39 Economics and Investment Markets.pdf
Page: 2
Status: Correct
Correct Answer: B
Question
Which of the following assets provides a most effective hedge against bad consumption outcomes?
Answer Choices:
A. Equity
B. Risk-free bonds
C. Real estate
Explanation
Risk-free bonds (especially long maturity bonds) provide an effective hedge against bad
consumption outcomes. Equity prices and real estate values tend to be positively related
to the state of the economy and hence do not provide good hedges against bad
consumption outcomes.