Before maturity, an inverse relationship exists between PB and i.
What will be an ideal response?
(a) When interest rates go up, bonds go down in price.
(b) When interest rates decrease, bond prices increase.
(c) Owners of bonds will suffer a loss of capital because bond prices fall when yields rise.
(d) Rising interest rates pose a risk for bond investors because when newer bonds are issued with higher coupons, the value of existing bonds with lower coupons declines as investors trade up.
Fixed-income securities that are paying out at a lower interest rate than the prevailing interest rate of the day find themselves under pressure.
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