Rising interest rates will cause the market value of
A)call options on bonds to increase.
B)put options on bonds to decrease.
C)call options on bonds to decrease.
D)bond futures to increase.
E)call options on bonds to increase and put options on bonds to decrease.

Question

Quizplus · Accepted Answer

When interest rates rise, the market value of bonds decreases. This means that call options on bonds will decrease because they give the holder the right to buy the bond at a predetermined price, which becomes less attractive as the market value of the bond falls. Put options on bonds will increase because they give the holder the right to sell the bond at a predetermined price, which becomes more attractive as the market value of the bond falls. Therefore, choice C is the correct answer.

Rising Interest Rates Will Cause the Market Value of