Answer: decrease, while the market price of the bond rises.

The correct answer is **A** because of the interplay between two types of interest rate risk: coupon reinvestment risk and market price risk. When interest rates decline, the future value of reinvested coupon payments (and principal for bonds maturing before the horizon date) decreases. Conversely, the sale price of a bond maturing after the horizon date (requiring sale) increases when rates decline. Options B and C are incorrect as they misrepresent the relationship between interest rate changes and the future value of reinvested payments.

Author: LeetQuiz Editorial Team