Capital MarketsQuestion 338 of 398
As market interest rates rise, what generally happens to the prices of existing fixed-rate bonds?
a.Their prices rise
b.Their prices stay the same
c.Their coupon payments increase
d.Their prices fall
Explanation
Bond prices and interest rates have an inverse relationship: when market rates rise, the prices of existing fixed-rate bonds fall, because their older, lower coupons are less attractive than newly issued bonds. Conversely, when rates fall, existing bond prices rise.
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