The market price of outstanding bonds tends to fluctuate inversely with changes in the market interest rate.

Question

Quizplus · Accepted Answer

This statement is true according to the basic principles of bond market behavior. When interest rates in the market increase, the value of existing bonds decreases because investors can now earn a higher rate of return on their money by investing in new bonds with higher interest rates. On the other hand, when interest rates decrease, the value of existing bonds increases as they become more attractive to investors seeking fixed income.

The Market Price of Outstanding Bonds Tends to Fluctuate Inversely