Question

Suppose market interest rates are expected to decline in the next quarter. This will lead to…in the prices of bonds.

a.an increase followed by a decrease
b.an increase
c.no change
d.a decrease​

Answer 1

The correct answer is:

d. a decrease

When market interest rates are expected to decline, the prices of bonds tend to increase. This is because existing bonds with higher interest rates become more valuable compared to newly issued bonds with lower interest rates. As a result, investors are willing to pay more for existing bonds, leading to a decrease in bond prices.