Interest rate risk says that if market interest rates rise the price of outstanding bonds will fall.This means that interest rates and bond prices have an ________ relationship?
A)Par
B)Lock-step
C)Exchange rate
D)Inverse

Question

Quizplus · Accepted Answer

Interest rates and bond prices have an inverse relationship, which means that when interest rates rise, bond prices fall and vice versa. This relationship is due to the fact that as interest rates rise, newer bonds issued in the market offer higher yields, making existing bonds with lower yields less attractive to investors, thereby reducing their demand and lowering their prices.

Interest Rate Risk Says That If Market Interest Rates Rise