Suppose the Market Interest Rate Is Stable at 4 Percent

question 3

Multiple Choice

Suppose the market interest rate is stable at 4 percent and we see a decline in bond prices (and thus a rise in bond yields) . One explanation for this is that

• A)bond issuers are facing an excess demand for their bonds.
• B)bond purchasers perceive an increase in riskiness and thus a lower expected present value from those bonds.
• C)bond purchasers perceive a reduction in riskiness and thus a higher expected present value from those bonds.
• D)there is a positive relationship between interest rates and bond prices.
• E)there is no causal relationship between market interest rates and bond prices.

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