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floating rate bonds are most likely to be popular with investors when it is anticipated that...

floating rate bonds are most likely to be popular with investors when it is anticipated that
a interest rates will stay the same
b interest rates will go up
c interest rates will go down
d short term interest rates will be higher than long term interest rates

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Answer #1

Floating rate bonds are most likely to be popular with investors when it is anticipated that interest rates will go up.

Therefore correct answer is option b. interest rates will go up

An increase in interest rate will decrease the price of fixed rate bonds but if it is a floating rate bond then it will adjust with an increase in interest rate and it will be less affected because its coupon rates vary with market interest rates and it is reset at regular and short-term intervals. Therefore the floating rate bonds will be favored by the investors when it is anticipated that interest rates will go up.

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