The reason bond prices and interest rates are inversely related is that:
A) bond prices are fixed for the life of a bond.
B) market interest rates stay the same for the life of a bond.
C) the coupon payment is fixed for the life of a bond.
D) bonds are always perpetuities.

Question

Quizplus · Accepted Answer

The coupon payment of a bond is fixed, so when market interest rates rise, new bonds are issued with higher rates, making existing bonds with lower rates less attractive, thus decreasing their price.

The Reason Bond Prices and Interest Rates Are Inversely Related