Q:

Review pages 74 and 75 and then consider Figure 1 on page 97. What is the best description of the relationship between the interest rate, i, and the price of bonds, P?

 

When the price goes up, the interest rate also goes up to compensate. That way the yield remains the same.

 

When the price goes down, interest rates go up to compensate. That way the net price remains the same.

 

The market interest rate changes in one direction and the bond prices changes in the other direction so that the bond's yield to maturity equals the market interest rate.

 

Price and interest rates are seperate phenomena and are only linked through a bond's maturity.

 

 

 

Attachments:
IMG_0007-revised-pg74-good.pdf (15K)
IMG_0003_pg75-MoneyandBanking.pdf (17K)
IMG_0001_pg97-MoneyandBanking.pdf (11K)
IMG_pg97-readable-ok.pdf (15K)

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