Question

How does interest-rate risk affect bond prices and debt funds in portfolio management?

a.

Bond prices rise when interest rates rise

b.

Bond prices fall when interest rates rise

c.

Interest-rate changes have no impact on bond prices

d.

Longer-duration bonds are less sensitive to interest-rate changes

Answer: (b).Bond prices fall when interest rates rise Explanation:Interest-rate risk in portfolio management results in bond prices falling when interest rates rise. This impact is observed in the Net Asset Values (NAVs) of debt funds, especially affecting longer-duration bonds more than short-duration ones.

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Q. How does interest-rate risk affect bond prices and debt funds in portfolio management?

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