Suppose the Market Interest Rate Falls from 3% to 2

question 14

Multiple Choice

Suppose the market interest rate falls from 3% to 2%.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:

Payment Options

The various methods by which a buyer can fulfill a financial obligation to a seller, including cash, credit, and electronic transfers.

Compounding

The process where the value of an investment increases because the interest it earns itself earns interest.

Discounting

The process of determining the present value of a payment or series of payments that will be made in the future, often used in finance to compare investment opportunities.

Accumulate

To gather or collect items over time, often for accounting or quantitative measurement purposes.