Asked by Dekia Mitchell on Jul 22, 2024
Verified
The higher the price that must be paid to purchase a government bond,
A) the lower will be the market rate of interest on that bond.
B) the higher will be the market rate of interest on that bond.
C) the greater will be the inflation rate.
D) the lower will be the inflation rate.
E) the greater is the demand for that bond.
Government Bond
A debt security issued by a government to support government spending, often considered a low-risk investment.
Market Rate
The prevailing interest rate available in the marketplace for loans or deposits of a specific maturity.
Interest
The charge for the privilege of borrowing money, typically expressed as an annual percentage rate.
- Understand the relationship between the price of government bonds and market interest rates.
Verified Answer
AA
Ashley AguilarJul 22, 2024
Final Answer :
A
Explanation :
The price of a government bond and its market rate of interest are inversely related. When the price of the bond increases, it means investors are willing to pay more for the same future cash flows, which results in a lower yield or market rate of interest on that bond.
Learning Objectives
- Understand the relationship between the price of government bonds and market interest rates.