Assertion (A): The price of an existing bond falls when the yield buyers require rises.
Reason (R): Its fixed payments are then discounted at a higher rate.

Both A and R are true, and R is the correct explanation of A.Correct answerYour answerBoth A and R are true, but R is not the correct explanation of A.Correct answerYour answerA is true, but R is false.Correct answerYour answerA is false, but R is true.Correct answerYour answer

Show the answer and explanation

CorrectNot quiteAnswer A

Correct answer: A

R: the coupons and face value do not change, but each is divided by a larger $(1 + i)^{t}$ . True.
Smaller present values add to a lower price, so A is true because of R.

Concept: Bond prices and interest rates
Typical timeTypical: 90 s
Your timeYours: —

The rule this testsValuing a bond

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Assertion (A): The price of an existing bond falls when the yield buyers require rises.Reason (R): Its fixed payments are then discounted at a higher rate.

Explanation

Assertion (A): The price of an existing bond falls when the yield buyers require rises.
Reason (R): Its fixed payments are then discounted at a higher rate.