An increase in interest rates will help increase the future value of a portfolio because the cash flows produced by the portfolio:
A)will increase the maturity value of the bond.
B)can be reinvested at higher rates of return.
C)can be used to recall high-rate bonds.
D)will generate cash to pay future coupon interest.
E)will decrease the yield to maturity of the bond.

Question

Quizplus · Accepted Answer

When interest rates increase, the cash flows produced by the portfolio can be reinvested at higher rates of return, which in turn increases the future value of the portfolio. This is because the compounding effect of higher interest rates can lead to greater returns over time.

An Increase in Interest Rates Will Help Increase the Future