Question

The statement "Bond prices vary inversely with changes in the market rate of interest" means

A. that if the market rate of interest decreases, then bond prices will go up.
B. contractual interest rate increases, the market rate of interest will decrease.
C. contractual interest rate increases, then bond prices will go down.
D. market rate of interest increases, the contractual interest rate will decrease.

Answer 1

Answer:

The correct answer is option A.

Explanation:

The statement given above says that bond prices vary inversely with changes in market interest rate. It means that there is an inverse relationship between bond prices and the market interest rate.

In other words, when the market interest rate falls, the bond prices will rise and when there is an increase in market interest rate, the bond prices will fall. The bond price and market rate of interest are negatively related.