As interest rates rise, the prices of existing bonds will:
A) rise
B) stay the same
C) fall
D) either a or b, depending on the state of the economy

Question

Quizplus · Accepted Answer

When interest rates rise, the prices of existing bonds will fall because newer bonds will offer higher interest rates, making existing bonds less attractive. As a result, bondholders may sell existing bonds at a lower price to purchase newer bonds offering higher interest rates. This downward pressure on bond prices will continue until the yields on existing bonds match or exceed those of newer bonds.

As Interest Rates Rise, the Prices of Existing Bonds Will