ECONOMICS
MONEY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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interest rates decrease.
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interest rates increase.
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the company files bankruptcy.
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the government increases it’s debt.
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Detailed explanation-1: -Bond prices and interest rates move in opposite directions, so when interest rates fall, the value of fixed income investments rises, and when interest rates go up, bond prices fall in value.
Detailed explanation-2: -When interest rates rise, bond prices typically fall. Conversely, bond prices increase after a drop in interest rates.
Detailed explanation-3: -When interest rates rise, bond prices go down in value. Most bonds pay a fixed coupon (i.e. interest payment) and if rates go up, the only way a fixed coupon can equate to a higher interest rate is if the investor pays less for the bond.
Detailed explanation-4: -A fundamental principle of bond investing is that market interest rates and bond prices generally move in opposite directions. When market interest rates rise, prices of fixed-rate bonds fall.
Detailed explanation-5: -Essentially, the price of a bond goes up and down depending on the value of the income provided by its coupon payments relative to broader interest rates. If prevailing interest rates increase above the bond’s coupon rate, the bond becomes less attractive.