ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -In a scenario where yields drop, the assets are reinvested at lower rates and therefore earn less over the full lifespan of this investment.

Detailed explanation-2: -When interest rates rise, prices of existing bonds tend to fall, even though the coupon rates remain constant: Yields go up. Conversely, when interest rates fall, prices of existing bonds tend to rise, their coupon remains constant – and yields go down.

Detailed explanation-3: -Rising bond yields are a negative for bond holders because of the inverse relationship between bond yields and bond prices. When yields rise, prices of current bond issues fall. This is a function of supply and demand.

Detailed explanation-4: -In return for buying the bonds, the investor – or bondholder– receives periodic interest payments known as coupons. The coupon payments, which may be made quarterly, twice yearly or annually, are expected to provide regular, predictable income to the investor..