If interest rate goes up in the future, what will mostly happen to bond price?

O No change

O Not related

O Decrease

O Increase

Solutions

Expert Solution

The right option is (c).

Explanation:

Interest rates and the Bond prices are inversely related. It means that if the interest rates goes up, then the price of bond will usually fall and vice-versa. This is because, most of the bonds are fixed interest rate bonds thus when the cost of borrowing i.e. interest rates rises in the future, the investors will not prefer bonds with lower fixed interest rates and thus the prices of the bonds will fall and vice-versa.

Hence, answer is Decrease.

The right option is (c).

Junaid answered 1 year ago

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