Holding all other variables constant, as market interest rates increase, bond prices ____.

A) decrease
B) increase
C) remain unchanged
D) None of the above

Question

Holding all other variables constant, as market interest rates increase, bond prices ____.A) decreaseB) increaseC) remain unchangedD) None of the above

Tommaso Maffei · Accepted Answer

Final Answer : A, Explanation :  When market interest rates increase, the yield on newly issued bonds also increases to match the higher rates. This makes previously issued bonds with lower yields less attractive to investors, causing their prices to decrease. Conversely, when market interest rates decrease, bond prices tend to increase.

Holding all other variables constant, as market interest rates increase, bond prices ____.

A) decrease
B) increase
C) remain unchanged
D) None of the above

Definitions

Learning Objectives

Learning Objectives

Related questions