One way that life insurance firms can hedge the risk created by offering whole-life insurance policies is by ________.

A) holding long-term bonds
B) holding equities
C) holding short-term bonds
D) exercising its right to terminate the policy

Life insurance firms can hedge the risk of providing whole-life insurance policies by holding long-term bonds. These bonds provide a steady and predictable income stream, which can be used to pay out claims or meet policyholders' cash value requests. Holding long-term bonds also provides some protection against interest rate volatility, as the value of these bonds tends to be less sensitive to changes in interest rates compared to shorter-term bonds.