When Interest Rates Decrease, What Happens to the Bond Prices

question 40

Multiple Choice

When interest rates decrease, what happens to the bond prices of seasoned issues (assume the coupon rate is fixed) ?

• A)The bond prices decrease
• B)The bond prices increase
• C)The bond prices are unaffected.
• D)The bonds will be retired and re-issued at higher coupon rates

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Definitions:

Turnover Rate

A measure used to assess how frequently investments or inventory are replaced or sold over a given period.

Assets

Economic resources or owned items of value, including cash, property, and investments, that an individual or company can utilize to cover liabilities.

Dividend Yield

The ratio of a company's annual dividend payments to its share price, indicating the earnings investors can expect from owning the stock.

Liabilities

Financial obligations or debts that a company owes to others, which must be repaid.