Bond prices are
A) equal to the face value of the bond.
B) equal to the real interest rate.
C) equal to the nominal interest rate.
D) inversely related to the interest rate.

Question

Quizplus · Accepted Answer

Bond prices are inversely related to the interest rate. When interest rates go up, bond prices go down, and when interest rates go down, bond prices go up. This is because as interest rates rise, newer bonds are issued with higher yields, making existing bonds with lower yields less valuable. Alternatively, as interest rates fall, newer bonds are issued with lower yields, making existing bonds with higher yields more valuable.

Bond Prices Are