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      Question

      Which of the following statements about bond prices and

      interest rates is true?
      A Bond prices rise when interest rates rise Correct Answer Incorrect Answer
      B Bond prices are unaffected by interest rate movements Correct Answer Incorrect Answer
      C Bond prices fall when market interest rates rise Correct Answer Incorrect Answer
      D Interest rates don’t impact fixed-income securities Correct Answer Incorrect Answer
      E Bond prices rise only for government bonds Correct Answer Incorrect Answer

      Solution

      There is an inverse relationship between bond prices and interest rates. When rates rise, new bonds offer better returns, so existing bonds lose value and trade at a discount.

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