As interest rates fall, the prices of existing bonds will:
A)rise
B)stay the same
C)fall
D)either a or b, depending on the state of the economy
E)none of the above

Question

Quizplus · Accepted Answer

As interest rates fall, the prices of existing bonds will rise. This is because with lower interest rates, new bonds being issued will have lower coupon rates, which makes existing bonds with higher coupon rates more valuable. Therefore, investors are willing to pay a higher price to own these existing bonds.

As Interest Rates Fall, the Prices of Existing Bonds Will