The market price of bonds are sensitive to interest rates.

Question

Quizplus · Accepted Answer

When interest rates rise, the market price of bonds typically decreases, and when interest rates decline, the market price of bonds typically increases. This is because investors will demand a higher yield from bonds with fixed interest payments if the general interest rate environment has risen, in order to compensate for the opportunity cost of not investing elsewhere at a higher rate. Conversely, if interest rates have fallen, investors may be willing to accept a lower yield on bonds because the fixed income payments are now relatively more attractive compared to other potential investments.

The Market Price of Bonds Are Sensitive to Interest Rates