FINRA General Securities Representative SIE Question # 28 Topic 4 Discussion
SIE Exam Topic 4 Question 28 Discussion:
Question #: 28
Topic #: 4
After a customer purchases bonds at a yield of 5.00%, the current yield at market price increases to 5.25%. Which of the following statements is true regarding the value of the bonds?
When bond yields rise, the price of existing bonds falls. This inverse relationship exists because the fixed coupon payments of the bonds become less attractive compared to new bonds issued at higher yields.
B is correctbecause the bond’s market value decreases as its yield increases.
Ais incorrect because bond values decrease, not increase, with rising yields.
Cis incorrect because the face value (par value) remains unchanged.
Dis incorrect because changes in yield directly affect the bond’s market price.
[Reference:SIE Study Guide, Chapter 3: Bond Pricing and Yields, ]
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