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Zorluk: KolayDebt Securities and Bond Structure

If interest rates in the market rise, which of the following best describes the immediate impact on the trading prices of existing fixed-income bonds in the secondary market?

  1. The market prices of existing bonds decrease.Cevap
  2. B
    The market prices of existing bonds increase.
  3. C
    The market prices of existing bonds remain unchanged because coupon payments are fixed.
  4. D
    The market prices of existing bonds increase due to an inverted yield curve expansion.

Cevap

The market prices of existing bonds decrease.
Bond prices share an inverse relationship with interest rates. When market interest rates rise, existing bonds paying lower fixed coupon rates decrease in market price to adjust their yield to maturity up to current market levels.

Adım Adım Çözüm

1
Identify the core relationship between interest rates and fixed-income market values.
Bond prices move inversely to market interest rates.
When market interest rates increase, newly issued bonds offer higher returns, causing existing bonds paying lower fixed interest rates to decline in value until their competitive yield aligns with market conditions.

Anahtar Kavram

Inverse Relationship Between Bond Prices and Interest Rates
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Konular

Debt Securities and Bond Structure

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