Interest rates and the price of old or existing bonds are
A) directly related.
B) independent of each other.
C) inversely related.
D) sometimes directly related and sometimes inversely related.
E) There is not enough information to answer the question.

Question

Quizplus · Accepted Answer

Interest rates and the price of old or existing bonds are inversely related. When interest rates rise, the price of existing bonds falls because they become less attractive to investors who can get higher returns from newly issued bonds with higher interest rates. Conversely, when interest rates fall, the price of existing bonds rises because investors want to buy them at a lower price to earn a better return than what is being offered by newly issued bonds.

Interest Rates and the Price of Old or Existing Bonds