True or False: Bond price change reflects the change in present value of the remaining coupon payments.

The assertion that bond price change reflects the change in the present value of the remaining coupon payments is true. When interest rates fluctuate, the present value of the future cash flows from the bond—including the coupon payments and the face value at maturity—changes accordingly.

For instance, if interest rates rise, new bonds may be issued with higher coupon rates, making existing bonds with lower rates less attractive. Consequently, the present value of the coupon payments from those older bonds will decrease, leading to a decline in their price in the market. Conversely, if interest rates fall, existing bonds become more valuable as their coupon payments become more appealing relative to new bonds. Therefore, their price increases as the present value of those future cash flows rises.

This relationship emphasizes how bond prices and interest rates move inversely and underscores the fundamental role that present value calculations play in pricing bonds. Understanding this principle is crucial in money and banking, as it helps explain the behavior of bonds in various economic conditions.