The relationship between a bond's price and the yield to maturity
A) changes at a constant level for each percentage change of yield to maturity.
B) is an inverse relationship.
C) is a linear relationship.
D) a and b.

Question

Quizplus · Accepted Answer

The relationship between a bond's price and the yield to maturity is an inverse relationship. As the yield to maturity increases, the bond's price decreases and vice versa. This is because the bond's coupon rate is fixed, so when the yield to maturity increases, investors can find other bonds with higher yields and will therefore demand a lower price for the lower-yielding bond.

The Relationship Between a Bond's Price and the Yield to Maturity