n NISM Certifications
XV NISM Series XV
Medium

Which statement correctly describes interest rate risk?

Practice question from NISM XV Mock Test 7 — bank. The correct answer is highlighted below with a full explanation.

Options

  1. A

    When interest rates increase, bond prices generally fall, whereas equity prices may rise

  2. B

    A rise in interest rates tends to boost bond prices while causing a decline in equity prices

  3. C

    Rising interest rates can positively influence the prices of both equities and bonds

  4. Higher interest rates typically lead to a drop in both bond and equity prices

    Correct answer

Why this is the answer

Bond prices fall when interest rates rise because existing lower-yielding bonds become less attractive. Higher rates also increase borrowing costs for companies, potentially lowering equity values. Thus, both asset classes are negatively impacted by rising rates.

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NISM XV Mock Test 7