n NISM Certifications
X NISM Series X
Medium

Bond A carries an interest rate of 9%. Interest rates in the economy for similar bonds rise to 9.5%. Other things remaining the same, the price of Bond A in the secondary market will ______.

Practice question from NISM Series XA- Investment Adviser (Level 1) Mock Test 2 — bank. The correct answer is highlighted below with a full explanation.

Options

  1. A

    Increase

  2. Decrease

    Correct answer

  3. C

    Remain unchanged

  4. D

    Cannot be predicted

Why this is the answer

Bond prices and interest rates have an inverse relationship, so when market interest rates rise, existing bonds with lower coupon rates become less attractive, resulting in a fall in their market price.

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