Question: when interest rates increases, why does a bond price fall until effective bond yield equals interest rates? explain the following

when interest rates increases, why does a bond price fall until effective bond yield equals interest rates?

explain the following

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Economics Questions!

Q:

A bond is priced at $3,000 and has a duration of 3.5. What will the price of the bond be if interest rates increase by 2.75%? The bond price would fall to $2,812 The bond price would fall to $2,711 O...

Q:

Problem 1 ( MCQs , 3 0 points ) Choose the one right answer. If the bank pays you an interest rate of 5 % and the inflation rate is 2 % , then your real rate is ( a ) 3 . 0 0 % . ( b ) 7 . 0 0 % ( c...

Q:

Answer the following questions: If interest rates rise, do bond prices rise or fall? If the bond yield to maturity is greater than the coupon, is the price of the bond greater or less than 1 0 0 0 ?...

Q:

Consider three bonds with the same maturity and face value, and coupon rates of 3%, 4%, and 5%. If the interest rate increases by 1%, which bond price will decrease the most? (a) That of the 4%...

Q:

Which of the following statements is correct for Yankee bonds? A.Yankee bonds are bonds issued on NYSE by foreign firms for U.S. investors. B.Yankee bonds are bonds issued on NYSE by U.S. firms for...

Q:

Which of the following statements is correct for Yankee bonds? A.Yankee bonds are bonds issued on NYSE by foreign firms for U.S. investors. B.Yankee bonds are bonds issued on NYSE by U.S. firms for...

Q:

Consider a corporate bond with 25 years maturity. The par value of bond is $1,000 and annual coupon rate is 7%. This is a semiannual coupon bond, so the coupons are paid in every 6 months. a....

Q:

- A bond is selling at a premium. This indicates that: A. The yield to maturity is greater than the nominal yield B. The market price is less than the par value C. Interest rates have decreased since...

Q:

1st blank options = decrease, increase 2nd blank options = less, more 5. Risks of investing in bonds A security with higher risk will have a higher expected return. A bond's risk level is reflected...

Q:

JUST NEED THE BLANK WORDED QUESTION ANS. NOT MULTIPLE CHOICE 1st blank options = decrease, increase 2nd blank options = less, more 5. Risks of investing in bonds A security with higher risk will have...

Q:

Stephanie and Matt are married with no children. In 2021, they have a total gross income of $140,000. Their allowable deductions for adjusted gross income total $6,000, and they have $16,000 of...

Q:

Suppose that we roll a pair of dice. What is the probability that there will be at least one dice coming up 1?

Q:

A variation of a forward contract that is traded daily in a market with many buyers and sellers and does not have a predetermined settlement date is a / an ? Group of answer choices futures contract....

Q:

Predict the bond angles for SO3. :0: j=s= :O: :0

Q:

2. Describe the graphical relationship between ticket prices and the number of people choosing to visit amusement parks. Is that relationship consistent with the fact that, historically, park...

Q:

5. For each of the following situations involving marginal cost (MC) and marginal benefit (MB), indicate whether it would be best to produce more, fewer, or the current number of units. LO1.4 a....

Q:

2. Indicate whether each of the following statements applies to microeconomics or macroeconomics: LO1.3 a. The unemployment rate in the United States was 5.1 percent in September 2015. b. A U.S....