The relationship between bond prices and interest rates is:
A) neither positive nor negative.
B) positive.
C) negative.
D) sometimes positive and sometimes negative.

Question

Quizplus · Accepted Answer

Bond prices and interest rates have a negative relationship in which an increase in interest rates results in a decrease in the price of bonds. This is because investors will demand a higher yield to compensate for the increased interest rates, meaning they will be willing to pay less for existing bonds with lower yields. Conversely, a decrease in interest rates results in an increase in bond prices as investors are willing to pay more for the same income stream.

The Relationship Between Bond Prices and Interest Rates Is