You Believe Interest Rates Will Soon Fall

Question

Examlex · Accepted Answer

The Answer is a.I would rather own a fixed-rate bond because the interest income I receive from a floating-rate bond will fall as interest rates decline.Equivalently,the market value of the fixed-rate bond will rise as rates fall,but that of the floating-rate bond will not.(This presumes the fixed-rate bond is not callable. )
b.My answer would change.I would rather issue a floating-rate bond now because future interest payments will fall as rates decline.
c.My answer would change.As an investor,I would want to hold a floating-rate bond because interest income will rise as interest rates rise.Equivalently,the price of the fixed-income bond will fall as rates rise,while that of the floating-rate bond will not.

You Believe Interest Rates Will Soon Fall

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