When interest rates decrease, bond:
A) prices increase.
B) maturity periods decrease.
C) coupon rates decrease.
D) current yields increase.
E) yields to maturity increase.

Question

Quizplus · Accepted Answer

When interest rates decrease, bond prices increase. This is because existing bonds with higher interest rates become more valuable since they provide a higher return compared to new bonds with lower interest rates. As a result, investors are willing to pay more for these existing bonds, driving up their prices. Conversely, when interest rates increase, bond prices decrease.

When Interest Rates Decrease, Bond