Investment VehiclesQuestion 20 of 110
If interest rates rise, what generally happens to the price of an outstanding fixed-rate bond?
a.The price rises proportionally with rates
b.The price is unaffected because the coupon is fixed
c.The bond automatically converts to a floating rate
d.The price falls
Explanation
Bond prices move inversely to interest rates, so when rates rise, existing fixed-rate bond prices fall. This inverse relationship is a core principle of fixed income. Longer-duration bonds fall more sharply than shorter-duration bonds for the same rate increase.
Practice all 110 questions free — no signup required.
Related questions on this topic
- Which feature distinguishes preferred stock from common stock?
- A bond is trading at a premium to par. Which relationship is true?
- Duration is best described as a measure of which of the following?
- A bond with a 5% coupon and $1,000 par is purchased for $800. What is its current yield?
- An open-end investment company (mutual fund) sells and redeems its shares at which price?
- Which statement about exchange-traded funds (ETFs) is accurate?
Last reviewed: · editorial process
PrepPass Editorial Team · Verified against NASAA Series 65 Investment Adviser Law Exam · How we review