Question:
Which of the following is a true statement about the relationship between the price of bonds and the interest rate?
a. The prices of bonds are inversely related to the interest rate.
b. The prices of bonds are directly related to the interest rate.
c. The prices of bonds are unrelated to the interest rate.
d. The prices of bonds increase when the interest rates rise.
Bonds:
Bonds are financial instruments issued by corporations and governments to borrow funds from investors for the long term. These bonds could be coupon-paying bonds or zero-coupon bonds. Moreover, they may be issued at the face value, at a discount, or at a premium.
Answer and Explanation:1
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The correct answer is option a. The prices of bonds are inversely related to the interest rate.
The price of a bond can be determined by taking a sum...
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