Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

11. Long Term Liabilities

Introduction to Bonds and Bond Characteristics

Financial Accounting

11. Long Term Liabilities

Introduction to Bonds and Bond Characteristics

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Multiple Choice

What type of relationship exists between bond prices and market interest rates?

An inverse relationship

A direct relationship

No relationship

A proportional relationship

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Verified step by step guidance

Understand the concept of bond pricing: Bond prices are determined based on the present value of future cash flows (interest payments and principal repayment) discounted at the market interest rate.

Recognize the impact of market interest rates: When market interest rates rise, the discount rate used to calculate the present value of a bond's cash flows increases, leading to a lower bond price.

Analyze the inverse relationship: Conversely, when market interest rates fall, the discount rate decreases, causing the present value of the bond's cash flows to increase, which results in a higher bond price.

Relate this to the options provided: The relationship between bond prices and market interest rates is inverse, meaning bond prices move in the opposite direction of market interest rates.

Conclude the reasoning: Based on the explanation, the correct answer is 'An inverse relationship,' as bond prices decrease when market interest rates increase and vice versa.