When a Given Bond's Price Increases, We Know That the Interest

question 27

Multiple Choice

When a given bond's price increases, we know that the interest rate on this bond:

• A) remains unchanged.
• B) must increase.
• C) must decrease.
• D) could increase, decrease, or remain unchanged.

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Definitions:

Nominal Price

Absolute price of a good, unadjusted for inflation.

CPI (Consumer Price Index)

An indicator that assesses the weighted mean of the prices for a selection of consumer products and services, including food, transportation, and healthcare, aimed at calculating the living expenses.

Real Price

The price of a good or service adjusted for inflation, reflecting its purchasing power over time.

Real Return

Simple (or nominal) return on an asset, less the rate of inflation.