SIE (Securities Industry Essentials) Practice Exam

Which of the following is least affected by interest rate rises?

1. Bonds

2. T-bills

3. Corporate stocks

4. Mortgage-backed securities

The correct answer is: T-bills

T-bills are short-term debt instruments issued by the government, meaning their maturity or time until they are paid back is usually less than one year. They are issued at a discount and mature at face value, making them relatively unaffected by interest rate rises. A Bonds, on the other hand, are long-term debt instruments with fixed interest rates. When interest rates rise, the value of existing bonds decreases, making them significantly affected by interest rate changes. C: Corporate stocks are equity investments in companies and are not directly impacted by interest rate changes in the short term. However, fluctuations in interest rates can affect the overall economy and ultimately impact stock prices. D: Mortgage-backed securities represent a pool of mortgages bundled together and sold to investors. As interest rates rise, the cost of borrowing also increases, making it more expensive for individuals to take out mortgages. This can lead to a decrease in demand for mortgage-backed securities, making them affected by interest rate rises. Overall, T-bills are least affected by interest rate rises as they have shorter maturities and their interest rates are already determined when they are issued.