A bond's price is sensitive to changes in

Question

Quizplus · Accepted Answer

A bond's price is affected by all three factors: interest rate changes, accepted rate of return on investment, and investor confidence in the firm's stability and creditworthiness. As interest rates increase, the present value of future cash flows generated by the bond decreases, reducing its price. Similarly, if the rate of return on other investments increases, the bond's fixed return becomes less attractive, leading to a decline in its price. Additionally, if investors become less confident in the issuer's ability to repay the bond, demand for the bond declines, leading to a fall in its price.

A Bond's Price Is Sensitive to Changes in