Question

If current market interest rates rise, what will happen to the value of outstanding bonds?

1. They will rise.
2. They will remain unchanged.
3. There is no connection between current market interest rates and the value of outstanding bonds.
4. They will fall.

Answer 1

The correct answer is 4. If current market interest rates rise, the value of outstanding bonds will fall.

Step-by-step explanation:

The economics of financial investment of bonds indicates that if the value of the interest rate rises, said rise implies a virtual increase in the risk of the bond, that is, it pays more interest because it is more risky to invest in it.

Therefore, in the event of an interest increase, the price of the bonds will fall. On the contrary, a lower interest rate infers a greater security of the financial asset, with which the lower the interest rate, the higher the value of the bond.