As interest rates rise, the market price of your bond is also likely to rise.

Question

BlackTom AI · Accepted Answer

The statement to evaluate is: 'As interest rates rise, the market price of your bond is also likely to rise.'
Option 1: True. This is not consistent with how bond prices typically behave in relation to interest rates. When market interest rates go up, newly issued bonds offer higher yields, making existing bonds with lower coupons less attractive, which generally causes their market prices to fall to align with current rates. The inverse relationship between interest rates and bond prices is a fundamental concept in fixed-income investing, so describing prices as rising in a rate-up environment would be incorrect in standard scenarios.
Option 2: False. This option correctly reflects the common financial principle that bond prices move inversely to interest rates. If rates rise, the price of a previously issued bond tends to decrease because its fixed coupon payments are less competitive relative to new bonds issued at the higher prevailing rates. Conversely, when rates fall, existing bonds with higher coupons become more valuable, pushing their prices upward. The key idea is discounting future cash flows at the going market rate; a higher discount rate lowers the present value of those cash flows, reducing the bond’s price.
In sum, option 1 asserts a relationship that contradicts the typical inverse price–rate dynamic for bonds, whereas option 2 states the inverse relationship correctly. The misconception in the first choice often stems from conflating bond yields with prices or not recognizing how present value changes with the discount rate.

As interest rates rise, the market price of your bond is also likely to rise. 判断题

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