Which of the following statements correctly describes

Solution

Bond price and yield have an inverse (negative) relationship. When market interest rates (yields) rise, newly issued bonds offer higher coupon rates, making existing bonds with lower fixed coupons less attractive so investors pay less for them, causing their prices to fall. Conversely, when yields fall, existing bonds with higher fixed coupons become more valuable, driving prices up. This inverse relationship is a fundamental fixed-income concept. Duration measures a bond's price sensitivity to yield changes longer duration bonds experience larger price fluctuations for the same yield movement.