Two factors determine the price of a bond: ______ and ______.
A) market; risk
B) risk; interest rate
C) interest rate; discount rate
D) price of other bonds; the company selling the bond

Question

Quizplus · Accepted Answer

The price of a bond is primarily determined by two factors: the level of risk associated with the bond and the prevailing interest rates in the market. As interest rates rise, bond prices tend to fall as investors demand higher yields to compensate for the increased risk. Conversely, as interest rates fall, bond prices tend to rise as investors are willing to accept lower yields. The level of risk associated with a bond is typically reflected in the bond's credit rating, with lower-rated bonds being perceived as higher risk and therefore commanding a higher yield. Thus, the relationship between risk and interest rates plays a crucial role in the determination of bond prices. The other options are incorrect because the price of other bonds and the company selling the bond may impact investor demand but are not direct determinants of the bond's price.

Two Factors Determine the Price of a Bond: ______ and ______

Two Factors Determine the Price of a Bond: and