Seg Funds Investor Profile & Investment Basics question: Bank of Canada raises interest rates sharply

Seg FundsInvestor Profile & Investment Basics

Hugo, 52, an electrician in Saskatoon, Saskatchewan, plans to retire in about 13 years. Most of his non-registered segregated fund contract is in a long-term bond fund that a previous agent chose for him, and the rest is in a Canadian equity fund. Over the following months the Bank of Canada raises interest rates sharply. What is the likely effect on the value of his bond fund?

A It rises
B It is unchanged
C It falls
D It doubles

Show the answer and explanation

Answer: C. It falls

Bond prices move inversely to interest rates. When rates rise, existing bonds paying lower coupons become less valuable, and longer-term bonds fall the most. This is interest rate risk. Source: CISRO LLQP Curriculum (May 2015), Segregated Funds and Annuities module, component 1.1 (client's situation, investment objectives and investor profile) (as at 12 Oct 2026).

Common mistake

Expecting bond values to rise with rates.

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Original study material mapped to the public CISRO curriculum; not a real test question.Not affiliated with CISRO, CCIR or any provincial insurance regulator. Verify figures and rules against current guidance before relying on them.