If the price of a bond increases the interest rate on the bond will
A) fall.
B) stay the same.
C) rise.
D) It is not relevant as the interest on bonds is pre-determined.
E) None of the above.

Question

Quizplus · Accepted Answer

When the price of a bond increases, the yield (or interest rate) on the bond falls because the amount of interest paid is fixed, so if you pay more for the bond, the return relative to the purchase price decreases.

If the Price of a Bond Increases the Interest Rate