Suppose the market interest rate rises from 3% to 4%.This will lead to ________ in bond prices and ________ in bond yields.

Question

Quizplus · Accepted Answer

When the market interest rate rises, the value of existing bonds with lower interest rates becomes less desirable, causing their prices to decrease. As a result, bond yields must increase to remain competitive with the market interest rate. Therefore, option B is the correct answer as bond prices will fall and bond yields will rise.

Suppose the Market Interest Rate Rises from 3% to 4