If interest rates increase,
A) the prices of bonds and preferred stock increase
B) the price of bonds increases but the price of preferred stock decreases
C) the prices of bonds and preferred stock decline
D) the price of bonds decreases but the price of preferred stock increases

Question

If interest rates increase,​
A) ​the prices of bonds and preferred stock increase
B) ​the price of bonds increases but the price of preferred stock decreases
C) ​the prices of bonds and preferred stock decline
D) the price of bonds decreases but the price of preferred stock increases

Quizplus · Accepted Answer

When interest rates increase, the prices of existing bonds and preferred stocks typically decline. This is because new bonds and preferred stocks would be issued at the higher current interest rates, making the existing ones with lower interest payments less attractive, hence decreasing their market value.

If Interest Rates Increase,​

If Interest Rates Increase,