If the inflation premium for a bond goes up, the price of the bond
A) is unaffected.
B) goes down.
C) goes up.
D) need more information.

Question

Quizplus · Accepted Answer

If the inflation premium for a bond goes up, it means that investors are demanding a higher return to compensate for the expected increase in inflation. This causes the bond's yield to go up. Since the price of a bond and its yield are inversely related, an increase in yield leads to a decrease in bond price. Therefore, the price of the bond goes down.

If the Inflation Premium for a Bond Goes Up, the Price