Explain the rationale behind the inverse

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"A fundamental principle of bond investing is that market interest rates and bond prices generally move in opposite directions. This is known as interest rate risk. However, only corporate bonds are subject to this interest rate risk. Government bonds are not subject to this risk as the Government generally does not default on its bonds."

Do you agree with the above statement? Answer the following questions:

Problem a) Explain the rationale behind the inverse relationship between bond prices and market interest rates.

Problem b) Do you agree that only corporate bonds are subject to interest rate risk, and not Government bonds? Explain your answer.

Reference no: EM132755063

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