When interest rates rise, the value of long-term fixed-rate mortgages
A)remains the same.
B)rises.
C)falls.
D)rises at diminishing rates.

Question

Quizplus · Accepted Answer

When interest rates rise, the value of long-term fixed-rate mortgages falls because investors can earn higher interest on new investments. This makes existing fixed-rate mortgages less attractive, which reduces demand for mortgage bonds and causes their prices to fall. As a result, the yield on fixed-rate mortgages increases, which means borrowers would have to pay higher interest rates to attract investors.

When Interest Rates Rise, the Value of Long-Term Fixed-Rate Mortgages