The price of a bond that pays a fixed coupon rate and the bond's required return have a relationship that is best described as ________.

Question

Quizplus · Accepted Answer

The price of a bond and its required return have an inverse relationship. This means that as the required return increases, the price of the bond decreases; and as the required return decreases, the price of the bond increases. This is because the required return is the investors' expected rate of return, and as the required return increases, investors demand a higher rate of return to compensate for the increased risk, which in turn increases the discount rate and decreases the bond price.

The Price of a Bond That Pays a Fixed Coupon