Which of the following statements is correct?

Question

Quizplus · Accepted Answer

The correct statement is that interest rates and bond prices vary inversely. This means that when interest rates rise, bond prices fall, and when interest rates fall, bond prices rise. This relationship is due to the fact that bond prices are based on the fixed interest rate of the bond; when interest rates rise, newly issued bonds will offer higher interest rates, making older bonds with lower rates less attractive and thus decreasing their prices. Conversely, when interest rates fall, older bonds with higher fixed rates become more attractive, increasing their prices.

Which of the Following Statements Is Correct