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Which one of the following changes would typically increase the price of a fixed income instrument, such as a bond?
Suggested Answer: A
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26 comments · newest first
LO
Lorrie
5 months ago
But C could also be a factor. Higher risk can push prices down.
ZE
Zena
5 months ago
I’m leaning towards B. More time can mean more value.
MA
Maurine
6 months ago
I agree with A too. It makes sense for fixed income.
LA
Lajuana
6 months ago
I think A is the best choice. Lower inflation means higher bond prices.
JA
Jacqueline
6 months ago
Increased demand for bonds definitely raises their prices!
IS
Isidra
6 months ago
Wait, I thought longer maturities always meant higher risk?
MA
Mariko
6 months ago
Not so sure about that, what about interest rates?
ME
Merrilee
6 months ago
Totally agree, inflation impacts fixed income directly!
KA
Kati
7 months ago
A decrease in inflation rates usually boosts bond prices.
VA
Vallie
7 months ago
A decrease in inflation? That would actually decrease the bond's price. This exam question is a piece of cake!
JO
Jovita
7 months ago
Haha, D is just silly. Increased demand for goods and services has nothing to do with bond prices!
ME
Merrilee
8 months ago
B is also a good option. As the time to maturity increases, the bond's price would rise to compensate for the longer holding period.
WI
Wilda
8 months ago
Definitely C. An increase in risk premium means investors demand a higher return, which drives up the price of the bond.
AR
Arlyne
8 months ago
I think the correct answer is C. Increase in risk premium would typically increase the price of a fixed income instrument.
AM
Amber
8 months ago
I think the risk premium usually means higher yields, which would lower bond prices, so that option seems wrong to me.
HU
Huey
8 months ago
I feel like an increase in demand for goods and services might not directly affect bond prices, but it could influence interest rates somehow.
PA
Paz
8 months ago
I remember practicing a question like this where increasing the time to maturity had a different effect, but I can't recall if it always leads to higher prices.
MY
My
9 months ago
I think a decrease in inflation rates would generally lead to higher bond prices, but I'm not entirely sure how that interacts with other factors.
CO
Cortney
9 months ago
I'm leaning towards C as well. Increased risk premium means the bond is perceived as riskier, so investors will pay less for it, driving up the yield and price.
DO
Donte
9 months ago
I'm pretty sure the answer is C. An increase in risk premium means investors require a higher return, which drives up bond prices.
MA
Marcos
9 months ago
Okay, let me think this through. If inflation decreases, that would typically increase bond prices. And an increase in time to maturity would also increase prices. But I'm not sure about the risk premium one.
ST
Stacey
9 months ago
Hmm, I'm not sure about this one. I know that changes in interest rates and inflation can affect bond prices, but I'm not confident about the other factors.
NA
Na
10 months ago
I think the answer is C. An increase in risk premium would typically increase the price of a fixed income instrument.
BR
Brandon
3 months ago
C might not be right. Increased risk premium usually means higher yields, not prices.
MA
Mabel
4 months ago
I see your point, but B seems more logical to me. Longer maturity usually means higher prices.
SH
Sheridan
5 months ago
I disagree, I think it's A. Decrease in inflation rates would help bonds.