A non-callable bond decreases in price by 5% when interest rates increase by 1%. If interest...

Question

Question

A non-callable bond decreases in price by 5% when interest rates increase by 1%. If interest rates decrease by 1%, you would expect

an increase in price of more than 5%.

an increase in price of less than 5%.

an increase in price equal to 5%.

a decrease in price equal to 5%.

This question is impossible to answer without more information

Answer 1

Answer #1

The relationship between bond price and interest rate is inverse relationship.

If interest rate is increased, bond price will be reduced.

If interest rate is decreased, bond price will be increased.

Here, bond decreases in price by 5% when interest rates increase by 1%.

Answer:

an increase in price equal to 5%.

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Answer 2

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