How are Treasury bond prices affected when the interest rate rises?
A)The purchaser of the bond needs to spend less money to obtain a given number of dollars of interest per year, so the price of the bond must decrease.
B)The purchaser of the bond needs to spend more money to obtain a given number of dollars of interest per year, so the price of the bond must increase.
C)The purchaser of the bond needs to spend more money to obtain a given number of dollars of interest per year, so the price of the bond must decrease.
D)The purchaser of the bond needs to spend less money to obtain a given number of dollars of interest per year, so the price of the bond must increase.

Question

Quizplus · Accepted Answer

When interest rates rise, new bonds are issued with higher yields to attract investors, making existing bonds with lower interest rates less attractive. Therefore, the price of existing bonds must decrease to offer a competitive yield.

How Are Treasury Bond Prices Affected When the Interest Rate