An increase in bond prices accompanies a decrease in interest rates.

Question

Quizplus · Accepted Answer

Bond prices and interest rates have an inverse relationship - when interest rates decrease, bond prices increase and vice versa. This is because when interest rates are high, new bonds will have higher yields and therefore older bonds with lower yields become less attractive, causing their prices to decrease. When interest rates are low, new bonds will have lower yields and older bonds with higher yields become more attractive, causing their prices to increase.

An Increase in Bond Prices Accompanies a Decrease in Interest