Question

I) For a given change in interest rates, bond prices will increase more when rates decrease...

I) For a given change in interest rates, bond prices will increase more when rates decrease than they will decrease when rates increase.
II) The curve is steeper for higher interest rates.
III) The curve is always downward sloping.

A)I is incorrect, II, III are correct.

B)I and II are correct, III is incorrect.

C)I, II and III are correct.

D)I, III are correct, II is incorrect.

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Homework Answers

Answer #1

Answer to the Question is "D)I, III are correct, II is incorrect."

Explanation to the Answer:-

1. "I) For a given change in interest rates, bond prices will increase more when rates decrease than they will decrease when rates increase." is correct as the Rate and price of the bond have an inversed relationship, where the increase in rate leads to decrease in the price of the bond and vice versa.

2. "II) The curve is steeper for higher interest rates." is Incorrect as the curve will not be steeper as the price of the bond will decrease with the increase in price due to the inverse relationship.

3. "III) The curve is always downward sloping."as the curve will not be steeper as the price of the bond will decrease with the increase in price due to the inverse relationship.

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