If a pension fund holds long-term, fixed-rate bonds, the market value of the portfolio will ____ during periods when interest rates ____.

Question

Quizplus · Accepted Answer

When interest rates increase, the market value of fixed-rate bonds decreases because investors can purchase new bonds with higher yields. This lowers the demand for older, lower-yielding bonds, causing their prices to fall. Therefore, the market value of a pension fund's long-term, fixed-rate bond portfolio is likely to decrease during periods of rising interest rates.

If a Pension Fund Holds Long-Term, Fixed-Rate Bonds, the Market