Series 7 practice questionmediumAlternative Investments — REITs
Which type of REIT is most sensitive to interest rate changes?
- AEquity REITs
- BAll REITs are equally sensitive to interest rate changes
- CHybrid REITs
- DMortgage REITs✓ Correct answer
Explanation
Why D — Mortgage REITs
Mortgage REITs invest in mortgages and mortgage-backed securities, making them highly sensitive to interest rate changes. Rising rates decrease the value of existing mortgage holdings and increase borrowing costs. Equity REITs are also affected by rates but are more driven by property market fundamentals. Hybrid REITs combine both equity and mortgage investments.
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