Question

hich of the following statement is false with context to bond valuation?
a) The price of a bond at its maturity is equal to the final coupon payment.
b) Bond sells at par when the required rate of return is equal to the coupon
c) When interest rates increase, bond prices on outstanding issues decrease
d) When interest rates decrease, bond prices on outstanding issues increase
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Answer 1

The incorrect statement is - d) When interest rates decrease, bond prices on outstanding issues increase

• When two bonds offer different coupon rates with all of other attributes  as same, the lower-coupon rate bond undergoes a decrease in value as market interest rates increase.
• Most bonds pay a fixed rate of interest, if interest rates in general decline, the interest rates of the bond are more appealing, and people bid the bond price.