Ch.2 · Mutual Fund Structure Basics · medium
What happens to the NAV of a debt fund when interest rates in the market rise?
0% of students got this wrong
EXPLANATION
Bond prices and interest rates have an inverse relationship. When market interest rates rise, existing bonds (with lower fixed coupons) become less attractive, causing their prices to fall. Since debt fund NAV is based on the market value of bonds held, rising rates cause NAV to fall.
Practising Chapter 2 one question at a time?
Try the full chapter — 100 questions, tracked score, weak area breakdown.