Question

The prices of all fixed-income assets (bonds) a. vary inversely with the interest rate. b. vary...

The prices of all fixed-income assets (bonds)

a. vary inversely with the interest rate.

b. vary directly with the interest rate.

c. are independent of the interest rate.

d. are determined by the U.S. Treasury.

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Answer #1

It can be mentioned that the price of fixed income assets vary inversely with that of the interest rate and this is because of the interest rate increases people tend to put more money into the savings as a result of which the demand for fixed income assets decrease in the price of fixed income assets decrease. when the interest rate decreases the demand for fixed income assets increase because people tend to buy more fixed income assets which will fetch the more than the savings would give in return as a result of which is the price increases due to increase in demand.

Therefore (a) is the answer to this question

Because it varies inversely with the interest rate

(b,c) are wrong and because fixed income asset is not determined by US treasury

(d) is wrong to this question

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