The rate of return on a bond can be negative if market yields
A) rise.
B) fall.
C) become negative.
D) Rates of return cannot be negative.

Question

Quizplus · Accepted Answer

When market yields rise, the price of existing bonds falls (since new bonds are issued at the higher yield, making existing bonds with lower yields less attractive), which can result in a negative rate of return for the holder of the bond if they sell it at this lower price.

The Rate of Return on a Bond Can Be Negative