Final answer:
The interest rate increased by 1 percentage point when the market interest rate rose from 3% to 4%. The options provided in the original question did not include the correct answer. In the context of bonds, an increase in market interest rates leads to a decrease in the value of existing bonds.
Step-by-step explanation:
The question is asking to determine the number of percentage points by which the interest rate increased. To find this, you need to subtract the initial interest rate from the final interest rate. If the market interest rate rises from 3% to 4%, then the interest rate increased by 4% - 3% = 1%. So the number of percentage points that the interest rate increased by is 1 percentage point, which is not one of the options provided in the original question. This suggests there might be a typo in the options presented.
In finance, if the market interest rate rises, the value of existing bonds typically decreases. This is because new bonds would be issued at the higher current market rate, making the older bonds with lower interest rates less attractive, hence their price tends to decrease.