The rise and fall of a bond's price has a direct inverse relationship to its yield to maturity, or interest rate. As prices go up, the yield declines and vice versa. For example, a $1000 bond might carry a stated annual yield, known as the coupon of 7 %, meaning that it pays $70 a year to the bondholder. If that bond was bought for $920 , the actual yield to maturity would be 7.61 % ($70 annual interest on $920 of principal). Do you agree with this analysis? Briefly explain.

A. The analysis is partially correct. There is an inverse relationship between bond prices and bond yields, and the rate of return on the coupon payment is higher if the purchase price is lower. The analysis does not take into account the present value equation of calculating a bond yield. The yield to maturity must be calculated without using present value analysis.
B. The analysis is partially correct. There is a direct relationship between bond prices and bond yields, and the rate of return on the coupon payment is higher if the purchase price is higher. However, the analysis does not take into account the present value equation of calculating a bond yield. The yield to maturity must be calculated using present value analysis.
C. The analysis is partially correct. There is an inverse relationship between bond prices and bond yields, and the rate of return on the coupon payment is higher if the purchase price is lower. However, the analysis does not take into account the present value equation of calculating a bond yield. The yield to maturity must be calculated using present value analysis.
D. None of the above.

D. None of the above

Explanation:

There exists an inverse relationship between bond yields and bond prices. Higher the bond prices, lower will be the yield. For example a bond pays 10% interest rate on 1000 face value. If bond price is say 1000, the yield is 10%.

In case bond price is 980, the yield would be 100/980 i.e 10.2%. This shows, lower the bond price which is denoted as , higher would be the bond yield.

Similarly, there exists an inverse relationship between bond price and interest rate. This means, if the prevailing interest rate in market is higher than the bond's coupon rate of interest, it means investor expectations as denoted by would be higher and thus, price of such bonds would be lower.

Hence the given statement is wholly true.

1   all nations face the problem of scarcity because there are limited resources and unlimited wants. nations do not have enough factors of production to produce everything that their population wants. entrepreneurial resources initiate businesses to make new goods and services; labor resources produce goods and services.

2 there are four factors of production: natural resources, labor resources, capital resources, and entrepreneurial resources. natural resources are raw materials from nature that are used to produce goods. trees, water, and grains are natural resources. some natural resources, such as wheat and cattle, are renewable

3 wants

things that you do not need to have in order to survive, but would like to have

needs

things that you must have in order to survive

goods

physical products

services

tasks that a business perform for customers

resources

items that people can use to make or obtain what they need or want

determine

to settle or decide by choice of alternatives or possiblities

4 i really dont know