Suppose the Market Interest Rate Rises from 3% to 4

question 11

Multiple Choice

Suppose the market interest rate rises from 3% to 4%.This will lead to ________ in bond prices and ________ in bond yields.

• A)a fall; a fall
• B)a fall; a rise
• C)a rise; a fall
• D)a rise; a rise
• E)no change; no change

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Definitions:

Monthly Grants

Financial assistance or funds distributed on a monthly basis to individuals, organizations, or projects.

Compounded Semi-Annually

A frequency of interest calculation where the interest is added to the principal every six months, resulting in earning interest on interest in the second half of the year.

Present Value

The current value of a future sum of money or stream of cash flows, given a specified rate of return.

Perpetuity

A type of financial instrument that pays a fixed amount of cash flows indefinitely, without a maturity date.