EIP Practice Questions - EFPA European Investment Practitioner Exam

When interest rates in the market rise, what is the typical impact on the price of existing fixed-rate bonds?

The prices of existing bonds increase because their coupon payments become more valuable. The prices of existing bonds decrease because their coupon payments are less attractive compared to new bonds. The prices of existing bonds remain unchanged because the coupon rate is fixed at issuance. The prices of existing bonds become highly volatile but always return to their par value immediately.

Correct Answer:

The prices of existing bonds decrease because their coupon payments are less attractive compared to new bonds.

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