An increase in either the risk-free rate or the general level of the risk premium on bonds results in a higher required rate of return and therefore causes bond prices to increase.

Question

An increase in either the risk-free rate or the general level of the risk premium on bonds results in a higher required rate of return and therefore causes bond prices to increase. ​

Quizplus · Accepted Answer

An increase in either the risk-free rate or the general level of the risk premium on bonds results in a higher required rate of return, which causes bond prices to decrease, not increase, due to the inverse relationship between bond prices and interest rates.

An Increase in Either the Risk-Free Rate or the General