Assertion (A) : There exits inverse relationship between interest rates and bond prices. Reason (R) : A bond price represents the present discounted value of the payments agreed upon at the time when the bond was issued. Codes :
A)both (a) and (r) are correct, and (r) is the correct explanation of (a).
B)(a) is correct, but (r) is not the correct explanation of (a).
C)(a) is correct, but (r) is incorrect.
D)(a) is incorrect, but (r) is correct.

Question

Quizplus · Accepted Answer

Both statements are correct, and the reason correctly explains the assertion. When interest rates rise, the present value of a bond's future payments, which are fixed at issuance, decreases, leading to a decrease in the bond's price, illustrating the inverse relationship between interest rates and bond prices.

Assertion (A) : There Exits Inverse Relationship Between Interest Rates