SIE (Securities Industry Essentials) Practice Exam

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When market interest rates go up, a bond's:

  1. Price goes up

  2. Yield to maturity goes up

  3. Current Yield (CY) goes up

  4. Call price goes up

The correct answer is: Current Yield (CY) goes up

When market interest rates go up, a bond's Current Yield (CY) goes up. This is because CY is calculated by dividing the annual interest payment by the bond's current market price. As market interest rates increase, the bond's current market price will decrease, making the CY go up. Options A, B, and D are incorrect because they do not accurately describe the relationship between market interest rates and a bond's price, yield to maturity, or call price. When market interest rates go up, the price of a bond actually goes down, the yield to maturity also goes down, and the call price remains the same.

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