Question

Gretchen Hoffman, aged 60, is a conservative investor who, in the short term, wants current income and growth of capital. Interest rates have been decreasing and she believes they will continue to decrease. Which of the following investments would be most appropriate for Gretchen?

Answer 1

For a conservative investor like Gretchen Hoffman, who needs current income and is concerned about falling interest rates, indexed bonds such as Treasury Inflation-Protected Securities (TIPS) can be an appropriate investment choice.

Step-by-step explanation:

Gretchen Hoffman is a conservative investor looking for investment options that offer current income and growth of capital. Given that she anticipates a continued decrease in interest rates, bond investments, particularly those that are indexed to inflation, such as Treasury Inflation-Protected Securities (TIPS), could be most appropriate for her. TIPS offer the advantage of protecting against inflation, ensuring that the return exceeds inflation rates, providing stability and predictability for a retiree like Gretchen. On the other hand, the stock market is generally riskier and can fluctuate, which might not align with her conservative investment strategy. Therefore, a conservative investor looking for current income and who believes interest rates will continue to fall will find an investment like TIPS to be more suitable.