Interest Rates
When interest rates rise, what happens to the value of both individual bonds and bond mutual funds?
Interest rates and bond prices move inversely. Applies to both individual bonds and funds.
Complete Analysis & Legal Rationale
When interest rates rise, bond prices fall (inverse relationship). This affects both individual bonds and bond mutual funds because fund NAV is based on the market value of the bonds held. Rising rates reduce the value of existing bonds.
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:
Rising rates cause bond values to fall, not increase.
Both individual bonds and fund values decrease when rates rise.
Matches the verified teaching point in the explanation.
Bonds and bond funds are very sensitive to interest rate changes.
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.