is Question: 1 pt o. The rise and fall of a bond\'s price has a direct inverse r
ID: 1137089 • Letter: I
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is Question: 1 pt o. The rise and fall of a bond's price has a direct inverse relationship to its yield to maturity, or interest rate As prices go up, the yield declines and vice versa. For example, a $1,000 bond might carry a stated annual yeld, known as the coupon of 9%, meaning that it pays S90 a year to the bought for $910, the actual yield to maturity would be 989% ($90 annual interest on S910 of principal) Do you agree with this analysis? Briefly explain. reat rolationship between bond prices and bond yioldts, and the rate of reurm on he coupon payment is higher i the purchase price O A. The analysis is partally correct. There is a d O B. The analysis is partially correct. There is an inverse O c. The analysis is parfally correct. There is an inverse relationship behween bond pnces and bond yieids, and the rate of rotum on the coupon pment a her O D. None of the above. analysis dooes not take into account the present value equation of does not take into analysis does not tako into account the present valuo equation of calciang·bond yield. The res o maturty m-tocalaurecu ing i wr wium ranni is higher. However, he between bond prices and bond yiaids, and the rate of return on the coupon payment is higher ihe purchase prioe is lower. The anulysis h purchpice lower Howeve: tre caloulating a bond yield. The yleid to maturity must be using present value analysisExplanation / Answer
The analysis is partially correct. There is an inverse relationship between bond prices and bond yields, and the rate of return on the coupon payment is higher if the purchase price is lower. However, the analysis does not take into account the present value equation of calculating a bond yield. The yield to maturity must be calculated using present value analysis.
The corect ans is c)
as there is inverse relation present between bond price and bond yields.
while yield to maturity uses the present value analysis
so the statement is partially correct.
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