Suppose the market interest rate falls from 3% to 2%.This will lead to ________ in bond prices and ________ in bond yields.

Question

Quizplus · Accepted Answer

When the market interest rate falls, bond prices increase because the fixed interest payments of existing bonds become more attractive compared to new bonds issued at the lower current rate. Consequently, as bond prices rise, their yields (which move inversely to prices) fall.

Suppose the Market Interest Rate Falls from 3% to 2