The value of a bond is inversely related to changes in the investor's present required rate of return.

Question

Quizplus · Accepted Answer

When an investor's required rate of return increases, the value of a bond decreases. This inverse relationship between bond value and required rate of return is due to the fact that changes in interest rates have a significant impact on bond prices. When interest rates rise, newly issued bonds offer higher interest payments to investors, making existing bonds with lower interest payments less attractive, which lowers their market value.

The Value of a Bond Is Inversely Related to Changes