If the current market interest rate rises from 4% to 5%, the price of a ten-year maturity bond will

Question

Quizplus · Accepted Answer

When market interest rates rise, the prices of existing bonds fall, and the longer the maturity of the bond, the more its price falls. This is because, as interest rates rise, the future cash flows from the bond become less attractive when compared to new bonds issued at the higher rates. Therefore, a ten-year maturity bond will experience a larger price drop than a two-year maturity bond, making option A the correct choice.

If the Current Market Interest Rate Rises from 4% to 5