All else being equal, an increase in the yield to maturity of a bond will result in:
A)an increase in the market price of the bond.
B)a greater interest rate price risk on a long-term bond than on a short-term bond.
C)an increase in the maturity value of the bond.
D)a decrease in the rate of return at which the cash flows from the portfolios can be reinvested.
E)a lower risk of suffering losses in the market values of the bond portfolios.

Question

Quizplus · Accepted Answer

An increase in the yield to maturity of a bond results in a decrease in its market price. Therefore, there is greater interest rate price risk on a long-term bond than on a short-term bond, as the longer the maturity of a bond, the more its price will fluctuate with changes in interest rates. The other choices are either incorrect or unrelated to the question.

All Else Being Equal, an Increase in the Yield to Maturity