The relationship between the price and the interest rate for a zero coupon bond is best described as:

Question

Quizplus · Accepted Answer

The price and interest rate for a zero coupon bond have an inverse relationship. As the interest rate increases, the price decreases and vice versa. This is because an increase in interest rates means that investors can earn higher returns on their money elsewhere, so they will only invest in a bond if it is sold at a lower price. Similarly, if interest rates decrease, bond prices will rise as investors are willing to pay more upfront to earn a fixed return. Therefore, the relationship between the price and the interest rate for a zero coupon bond is best described as inverse.

The Relationship Between the Price and the Interest Rate for a Zero