Question

An increase in the market interest rate causes the price of an outstanding bond to rise,...

An increase in the market interest rate causes the price of an outstanding bond to rise, and a decrease in the market interest rate causes the price of outstanding bonds to fall as well.

True

False

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

This statement is False.

The situation is completely opposite.

When the market interest rises, the price of outstanding bond falls because the bond becomes less valuable now as the bond with same characteristics can be bought with a higher interest rate whereas when the market interest rate falls, the price of the outstanding bond rises because the outstanding bond is more valuable as it has a higher interest rate than the market.

I hope this makes sense and helps you

Please press the like button

Took a lot of efforts

Thanks & Regards

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
The substitution effect causes a borrower to increase private savings as interest rates rise, and it...
The substitution effect causes a borrower to increase private savings as interest rates rise, and it causes the same effect on a lender. True/False.
An increase in a country's real income causes the nominal interest rate to ____ and the...
An increase in a country's real income causes the nominal interest rate to ____ and the currency to ____. A rise; appreciate B rise; depreciate C fall; appreciate D fall; depreciate
if interest rate is expected to fall (rise) the best bond strategy is to own low...
if interest rate is expected to fall (rise) the best bond strategy is to own low (high) coupon and long (short) maturity bonds? a. true b. false c. uncertain jordan plans to issue bonds with a par value of $1,000. 10 years to maturity and 10% cupon rate. bonds of similar risk are currently selling to yield an 8 percent rate of return. if its coupon payments are paid semi-annually, what is the market value of each bond? a. $1,198.67...
19, Interest Rate Risk The Faulk Corp. has a 7 percent coupon bond outstanding. The Yoo...
19, Interest Rate Risk The Faulk Corp. has a 7 percent coupon bond outstanding. The Yoo Company has an 11 percent bond outstanding. Both bonds have 12 years to maturity, make semiannual payments, and have a YTM of 9 percent. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of these bonds? What if interest rates suddenly fall by 2 percent instead? What does this problem tell you about the interest rate risk...
A bond that pays a higher coupon rate of interest commands a higher price, and the...
A bond that pays a higher coupon rate of interest commands a higher price, and the price of existing bonds falls when market interest rates rise. Explain, using the present value formula, why both of these facts are true.
The total demand for funds curve slopes downward because a rise in the interest rate causes...
The total demand for funds curve slopes downward because a rise in the interest rate causes _____. A. government borrowing to decrease B. business borrowing to decrease C. both government borrowing and business borrowing to decrease D. household saving to increase E. consumption spending to decrease
1. A increase in the tax rate causes ______ in the interest rate on tax exempt​...
1. A increase in the tax rate causes ______ in the interest rate on tax exempt​ bonds, such as municipal bonds. A. increase B. Decrease C. No change 2.Suppose your marginal income tax rate is 20​%.If a corporate bond pays 15​%,then the interest rate that an otherwise identical municipal bond have to pay in order for you to be indifferent between holding the corporate bond and the municipal bond is _____ ​%. ​(Round your response to the nearest whole​ number)....
The Cheltenham Company has a semi-annual coupon bond outstanding. A decrease in interest rates will have...
The Cheltenham Company has a semi-annual coupon bond outstanding. A decrease in interest rates will have which one of the following effects on the bond? A. decrease the coupon rate B. increase the coupon rate C. increase the time to maturity D. decrease the market price E. increase the market price
The Faulk Corp. has a bond with a coupon rate of 7 percent outstanding. The Gonas...
The Faulk Corp. has a bond with a coupon rate of 7 percent outstanding. The Gonas Company has a bond with a coupon rate of 13 percent outstanding. Both bonds have 12 years to maturity, make semiannual payments, and have a YTM of 10 percent. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of these bonds? What if rates suddenly fall by 2 percent instead?
When the demand for a product is price elastic, a rise in its price causes total...
When the demand for a product is price elastic, a rise in its price causes total revenue to: Select one: a. fall because quantity sold remains the same and thus total revenue falls. b. fall because the higher price per product is not enough to offset the decrease in revenue from the fall in quantity sold. c. rise because the higher price per product will more than offset the fall in revenue due to the decrease in quantity sold. d....
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT