Economics · Bond Valuation Theorems
Which pair of Theorems for Bond Value correctly describes the fundamental principles guiding the relationship between bond prices and interest rates?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Theorem 1: Bond prices and market interest rates move in the same direction. Theorem 2: Longer-maturity bonds have less price volatility than shorter-maturity bonds, all else being equal.
- 2Theorem 1: Bond prices are inversely related to market interest rates (Yield-to-Maturity). Theorem 2: For a given change in YTM, the price change is greater for bonds with longer maturity.✓
- 3Theorem 1: The coupon rate is directly proportional to the bond's Yield-to-Maturity. Theorem 2: Lower-coupon bonds have lower price volatility than higher-coupon bonds.
- 4Theorem 1: The Bond Value with Semi-annual Interest is always exactly double the annual interest bond value. Theorem 2: A bond's duration is equal to its time to maturity.
Correct answer
Theorem 1: Bond prices are inversely related to market interest rates (Yield-to-Maturity). Theorem 2: For a given change in YTM, the price change is greater for bonds with longer maturity.
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