An increase in interest rates will increase the future value

An increase in interest rates will increase the future value of a portfolio because the cash flows produced by the portfolio:

Select one:

a. will increase the maturity value of the bond.

b. can be reinvested at higher rates of return.

c. can be used to recall high-rate bonds.

d. will generate cash to pay future coupon interest.

e. will decrease the yield to maturity of the bond.

Solution

An increase in interest rates will increase the future value of a portfolio because the cash flows produced by the portfolio can be reinvested at higher rates of return. Option B is correct