Bond Pricing
If interest rates rise, what happens to the price of existing bonds?
Interest rates UP = Bond prices DOWN (inverse relationship).
Complete Analysis & Legal Rationale
Bond prices and interest rates have an inverse relationship. When interest rates rise, existing bonds with lower coupon rates become less attractive compared to new bonds issued at higher rates, causing their prices to fall.
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
Bond prices would rise only if interest rates FALL, making existing higher coupons more valuable.
Matches the verified teaching point in the explanation.
Bond prices are always sensitive to interest rate changes - they never stay unchanged.
Coupon rates are fixed at issuance and never change during the life of the bond.
Official Standard: Outline-level citation: item maps to Series 7 topic coverage. Prefer a specific FINRA/SEC/MSRB rule citation in a later author pass.