Given an understanding of interest-rate risk, an existing fixed-interest investor in bonds would be affected in which of the following way(s) if the market interest rates on bonds were to rise from 8% to 10%?

Question

Quizplus · Accepted Answer

Interest receipts from existing bonds remain fixed and do not change with market interest rates. However, as market interest rates rise, the market price of existing bonds, which have lower interest rates, falls because new bonds are issued at the higher current rate, making existing bonds less attractive.

Given an Understanding of Interest-Rate Risk, an Existing Fixed-Interest Investor