Question

Which of the following statements is​ true? A.If interest rates remain​ constant, the value of premium...

Which of the following statements is​ true?

A.If interest rates remain​ constant, the value of premium bonds will increase over time.

B.If interest rates​ increase, the value of a bond will increase.

C.The value of a bond is inversely related to changes in​ investors' present required rate of return.

D.interest rates​ decrease, the value of a bond will decrease.

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Answer #1

C.The value of a bond is inversely related to changes in​ investors' present required rate of return. (True)

Explanation: When the required rate of return of the investor increases the value of the bond decreases as the result and vise versa. This is because, the investor can earn more return instead of investing in bond. Annual coupon and the face values are discounted by required rate of return and hence, any change in required rate of return inversely affect the bond price.

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