Question

You run a pension fund and the bonds in which you've invested will mature after you...

You run a pension fund and the bonds in which you've invested will mature after you will need to pay out the money. If interest rates _____, the bonds will fall in price and you'll have to sell them cheap. This is known as _____ risk.

Select one:

rise; price

rise; reinvest

rise; credit

rise; liquidity

fall; price

fall; reinvestment

fall; credit

fall; liquidity

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Homework Answers

Answer #1

Option 1 is correct. rise; price.

Since the Value of the Bond and Interest Rate have an inverse relationship i.e. the rise in the interest rate will reduced the value of Bond and vice- versa. Also this leads to Price Risk as change in Interest Rate results in change in Prices of Bond. So, Option 1 is correct.

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