Which one of the following statements about bonds is correct?
A) Most bonds pay interest annually.
B) The yield on a bond for a bond investor is generally a fixed rate.
C) Bond prices vary inversely with interest rates.
D) Bond coupon rates vary with interest rates.

Question

Quizplus · Accepted Answer

Bond prices and interest rates have an inverse relationship - as interest rates go up, bond prices go down, and vice versa. This is because bond issuers need to offer higher rates to attract investors when interest rates are low, and lower rates when interest rates are high. Therefore, if interest rates rise, the value of existing bonds with lower rates becomes less attractive to investors, causing the price of the bond to decrease.

Which One of the Following Statements About Bonds Is Correct