You have just purchased a government bond for $1100 that promises to pay $100 p.a.over the next five years.The market price of the bond has just increased to $1200.A likely reason for this is:

Question

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When interest rates decrease, the price of bonds on the market tends to increase, as they become more attractive to investors. Therefore, the increase in market price from $1100 to $1200 suggests that interest rates have decreased. A), the face value of the bond, does not typically change after the bond has been issued. B) and C) are both incorrect as they suggest that the bond has become less attractive to investors, which is not reflected in the increase in market price.

You Have Just Purchased a Government Bond for $1100 That