If interest rates increase, the market prices of bonds increase. If interest rates decrease, the market prices of bonds decrease.

Question

Quizplus · Accepted Answer

When interest rates increase, the market prices of existing bonds decrease because new bonds are issued at the higher rates, making the older, lower-yielding bonds less attractive. Conversely, when interest rates decrease, the market prices of existing bonds increase because they yield more than the new bonds issued at the lower rates.

If Interest Rates Increase, the Market Prices of Bonds Increase