The figure given below shows the demand [D and D'] and supply [S and S'] curves of shares of stock.Figure 17.2

-Which of the following describes the relationship between bond prices and bond yields?

Question

The figure given below shows the demand [D and D'] and supply [S and S'] curves of shares of stock.Figure 17.2
 
-Which of the following describes the relationship between bond prices and bond yields?

Quizplus · Accepted Answer

There is an inverse relationship between bond prices and bond yields. When bond prices increase, bond yields decrease, and vice versa. This relationship is because, when bond prices increase, the effective interest rate on the bond decreases, making the bond less attractive to investors relative to other investments with higher yields. Conversely, when bond prices decrease, the effective interest rate on the bond increases, making the bond more attractive to investors relative to other investments with lower yields.

The Figure Given Below Shows the Demand [D and D']