Q. Consider the following statements:
1.Yields fall when the price of bond increases.
2.Yields fall when inflation rises.
3.Rising bond yields in India may increase the rate of borrowing for the government and the citizens.
Which of the statements given above are correct?

[A] 1 and 2 only

[B] 2 and 3 only

[C] 1 and 3 only

[D] 1, 2 and 3

Answer: C
Notes:

Statement 1 and 3 are correct. As bond prices rise, yield on it declines, and vice versa. Rising bond yields in India may increase the rate of borrowing for the government and the citizens.

Statement 2 is incorrect. A rising inflation pushes bond prices lower, thereby pushing yields higher.

Source: ToI