Consider a 5-year bond with a 6 1/2% coupon interest rate. If interest rates are rising,...

Consider a 5-year bond with a 6 1/2% coupon interest rate. If interest rates are rising, we would expect the price of the bond to:

Solutions

Expert Solution

There is a negative relationship between interest rate and bond prices.

So if interest rates are rising, the price of the bond will fall.

The basis reason for decrease is that as rate increases, higher discounting reduces the value of coupons and par value.

The lower coupon and higher maturity bonds are more affected in increasing interest rate scenario

Answer : expect the price of the bond to fall or decrease [Thumbs up please]

jeff jeffy answered 1 year ago

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