Which of these statements is true?
Show answer & explanation
Correct answer: A
Explanation
The correct answer is Option 1 i.e. Under competitive asset market conditions, the price of a bond must always be equal to its present value in equilibrium.
The true statement is: Under competitive asset market conditions, the price of a bond must always be equal to its present value in equilibrium.
In a competitive market, equilibrium is achieved when there is no arbitrage opportunity, meaning buyers and sellers agree on the bond’s value. The present value of a bond is the discounted value of its future payments. When markets are efficient and competitive, the bond's price reflects this present value, ensuring neither buyers nor sellers gain an unfair advantage.