Question

An investor believes that interest rates will be flat or falling into the future; and that prices may deflate. The MOST appropriate investment is:________A. Long term U.S. Government bondsB. Real estateC. GoldD. Large Capitalization stocks

Answer 1

Answer:

A. Long term U.S. Government bonds

Explanation:

A. Long term U.S. Government bonds

For this case that's the best option since by a general rule when we have a deflation the interest rates tend to decrease. Usually the long term investments have fixed rates and fixed payments that can be accumulated over the time.

B. Real estate

Not a good option since when we have deflation the real state prices tend to decrease as the good and services in order to mantain the sales.

C. Gold

No possible when we have deflation all the prices of good and services tend to decrease and the gold is an example of this. So is not a good option to invest.

D. Large Capitalization stocks

When we have stocks and we have a deflation we will have a depreciation of the stocks since the companies due to the deflation need to cut the prices to mantain the sales and make profits. So this one is not a good option for this case.